« Risk Aversion-- Gollier Table to Check Your Own Level | Main | Michael Barone's Retrospective on his Almanac of American Politics Intros »

November 18, 2004

A Lobbying Game-- All-Pay Auction with Free Riding

Yesterday I had my students play this lobbying game in class:
For this game, some of you will be Manufacturing firms and some Agricultural firms. The President is deciding between two policies. Free Trade will yield $10 million in benefit to each agricultural firm. Protectionism will yield $10 million in benefit to each manufacturing firm. In each year, each firm will write down its favored policy and its lobbying expenditure, amount X, on a notecard and hand it in. Whichever policy has the most lobbying wins. If your favored policy wins, your payoff is 10-X. If it loses, your payoff is -X.
In my class, which lasted 50 minutes, I had 11 Ag firms and 10 Manufacturing firms. I imposed a limit of X=10 for a firm's annual lobbying. The pattern of lobbying went like this:
Year  Protection  (Manufacturing)   Free Trade (Agriculture)

1                    49                       48
2                    48                       61
3                     0                       30
4                    52                       43
5                    21                       25
6                    56                       42
It's interesting that the total expenditure was often near the total value of the policy prize over all the firms--100 or 110. Note, too, that the lobbying swung from high to low a couple of times.

Within each industry, the amount of lobbying varied tremendously, with lots of zeroes. The student who had the highest payoff over all rounds had a payoff of 30, because his policy won three times and he never did any lobbying. We'd expect that-- the free rider always does best, even though if everyone free-rides, the industry does badly because it always loses the policy battle.

This game is variant on the "all-pay auction", with the twist that the prize is a public good, going to any firm in the industry rather than just the one that bids highest. Thus, it adds that free-riding element. The theoretical equilibrium is in mixed strategies-- carefully chosen randomizations each year.

My lobbying game scoresheet and overheads of lessons and caveats is up on the G202 course website. This is a good game for classroom use, not just for teaching about free riding but also because it is administratively easier than a lot of classroom games. The payoff structure is very simple. After explaining the game, I made each student a separate firm, and gave them each a notecard on which to write their lobbying expenditure. Each student brought up his notecard to me, except in the last round, when I allowed an industry rep to collect them all (which allows for enforcement of deals they might make to all lobby high). For the first few rounds, I did not allow talking, and then I did allow it. The students were eager to talk with each other, and seemed to enjoy the game.

Posted by erasmuse at November 18, 2004 10:15 AM

Trackback Pings

TrackBack URL for this entry:


Post a comment

Thanks for signing in, . Now you can comment. (sign out)

(If you haven't left a comment here before, you may need to be approved by the site owner before your comment will appear. Until then, it won't appear on the entry. Thanks for waiting.)

Remember me?