Experimental tests of Tullock’s contest with and without winner refunds

We examined experimentally the two-agent, complete-information Tullock’s contest, with and without refund for the winner. We find that the average bids in the refund group are higher than the average bids in the group without a refund, consistent with the theory. However, the auctioneer does not increase his profit if he changes the design of the contest by reimbursing the winner’s cost of effort. We also find underbidding for the low-valuation players and overbidding for the high-valuation player in a contest with a refund. Some players chose the corner solution of staying out of the game by biding zero.

► An experimental study of refunds’ impact on two-agent, complete-information Tullock contests. ► Participants were divided evenly into two groups, with and without a refund to the winner. ► Consistent with theory, average bids were higher in the refund group than in the non-refund group. ► In the refund group, low-valuation players under-bid and high-valuation players over-bid. ► Refunding the winner’s cost of effort, does not increase the auctioneer’s profit.