Effects of risk aversion on all-pay auction with reimbursement

摘要

This paper investigates all-pay auctions with winner's reimbursement and risk-averse contestants. Assuming the contestants share a general concave utility function, we obtain analytical solutions for the contestants' symmetrical equilibrium effort and the contest organizer's expected revenue. We show that both the equilibrium effort and expected revenue are lower when the contestants are risk averse than when they are risk neutral, and decrease in the degree of risk aversion. These results imply that with winner's reimbursement, the contestant organizer prefers risk-neutral contestants to risk-reverse contestants and contrast with those obtained in the standard first-price sealed-bid auctions. (C) 2019 Elsevier B.V. All rights reserved.