Consider an election contested by two candidates L & R; when L spends $x million on advertising and R spends $y million. L will get a share x/(x+y) of the votes and R will get y/(x+y). Assume the cost of campaigning is proportional to direct campaign expenditures x & y. Let us suppose that candidate L payoff is measured by its vote percentage minus its advertising expenditure 100 x/(x+y) – x. Similarly, candidate R’s payoff is 100y/(x+y) – y. Find the best response function for each candidate? What is the NE? Is it efficient?
Consider an election contested by two candidates L & R; when L spends $x million on advertising and R spends $y million. L will get a share x/(x+y) of the votes and R will get y/(x+y). Assume the cost of campaigning is proportional to direct campaign expenditures x & y. Let us suppose that candidate L payoff is measured by its vote percentage minus its advertising expenditure 100 x/(x+y) – x. Similarly, candidate R’s payoff is 100y/(x+y) – y. Find the best response function for each candidate? What is the NE? Is it efficient?
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter18: Public Economy
Section: Chapter Questions
Problem 7SCQ: Suppose there is an election for Soft Drink Commissioner. The field consists of one candidate hunt...
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7- Consider an election contested by two candidates L & R; when L spends $x million on advertising and R spends $y million. L will get a share x/(x+y) of the votes and R will get y/(x+y). Assume the cost of campaigning is proportional to direct campaign expenditures x & y. Let us suppose that candidate L payoff is measured by its vote percentage minus its advertising expenditure 100 x/(x+y) – x. Similarly, candidate R’s payoff is 100y/(x+y) – y. Find the best response function for each candidate? What is the NE? Is it efficient?
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