All-pay aspects of decision making under public scrutiny

Abstract

We study decision making processes with non-standard all-pay structures. In our first group of applications, individual members of some institution—due to public pressure or expectation—propose reductions of their own income, e.g., corporate board members reducing their bonus payments in an economic downturn, or politicians who reduce their expense allowances after some scandal. In such situations, the most aggressive proposal might carry the day and win public credibility or moral kudos for the proposer. Everyone, however, suffers the cost of that winning proposal. In the second group of applications, all participants bear the total cost of all bids as, e.g., under the filibuster strategy of delaying legislative action. The common features of these situations are a winner-take-all structure, non-standard payment rules, and nonvoluntary participation. We find that, in the equilibria of these games, everybody suffers a loss (with the possible exception of the winner).Auctions, Contests, Truth-telling