Two‐Stage Team Rent‐Seeking: Experimental Analysis

Abstract

This paper presents a two‐stage team rent‐seeking model with a contest prize that is not excludable among winning team members. When early effort is a perfect substitute for late effort, early actors can free ride on their late‐moving teammates. However, when early and late efforts are complements, all team members exert positive effort levels. Asymmetries in early effort reduce effort choices for all late movers. The theory is tested with laboratory experimental methods. Although subjects overinvest relative to the Nash equilibrium in all treatments, chosen effort levels provide limited support for the model. Early movers exerted higher effort in the complement treatment, and second‐stage effort choices were broadly consistent with best response functions. Surprisingly, in both single‐shot and repeated play environments, early movers in the substitute treatment did not free ride, choosing effort levels similar to those of late movers.