The effects of conflict budget on the intensity of conflict: an experimental investigation

• Published in: Experimental economics : a journal of the Economic Science Association Vol. 23; no. 1; pp. 240 - 258
• Main Authors: Baik, Kyung Hwan, Chowdhury, Subhasish M., Ramalingam, Abhijit
• Format: Journal Article
• Language: English
• Published: New York Springer US 01.03.2020; Springer Nature B.V
• Subjects: Behavioral/Experimental Economics; Between-subjects design; Budgets; Conflict; Economic theory; Economic Theory/Quantitative Economics/Mathematical Methods; Economics; Economics and Finance; Game Theory; Marginal utility; Microeconomics; Operations Research/Decision Theory; Original Paper; Social and Behav. Sciences; Wealth; D74; Conflict; Experiment; C91; Budget constraint; D72; Wealth effect; C72
• ISSN: 1386-4157; 1573-6938
• DOI: 10.1007/s10683-019-09615-0

We experimentally investigate the effects of conflict budget on conflict intensity. We run a between-subjects Tullock contest in which we vary the contest budget from Low to Medium to High, while keeping the risk-neutral Nash equilibrium bid the same. We find a non-monotonic relationship: bids increase when the budget increases from Low to Medium, but decrease when the budget further increases from Medium to High. This can happen for players with concave utility, if a high budget has a wealth effect that reduces the marginal utility of winning resulting in lower bids. To test this, we run a Wealth treatment in which the budget remains the Medium, but contestants receive a fixed payment (as wealth) independent of the contest outcome. The bids in the Wealth treatment are lower than the Medium treatment, but are not different from the High treatment, supporting the hypothesis of a wealth effect. We then support this empirical observation by a theoretical model with risk-aversion.