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Sébastien Rouillon edited sectionThe_benchmark.tex
over 8 years ago
Commit id: 4ebb8d457bcaf2af4ce5fe385f0a4726908da623
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%\footnote{The reason why we postulate that the benefit is public information, whereas the damage is private information, is because the latter will generally be more difficult to evaluate than the former. Indeed, the environmental and/or health effects may affect priceless goods and/or services, with no counterparts on existing markets. The reason why the benefit is assumed public information is for calculus tractability.}
The new product needs to be officially approved before lobby $I$ can market it. Two ways of doing so will be considered and compared below. In the first one, the regulator simply decides according to his prior beliefs using a cost-benefit analysis. In the second one, the regulator's decision depends on the two lobbyists' efforts, according
to a simultaneous Tullock contest (Tullock, 1980). Formally, lobbies $I$ and $E$ simultaneously bid nonnegative values, respectively denoted by $x$ and $y$, and the regulator approves the new product with the probability\footnote{Tullock (1980) uses the general contest success function $x^{r}/\left(x^{r}+y^{r}\right)$. We consider here the special case where $r=1$, which is
often commonly used and referred to as the "lottery contest" in the literature (Konrad, 2007).}
\begin{equation}
\pi\left(x,y\right)