Positional Externalities Cause Large and Preventable Welfare Losses¶
Frank, R. H. (2005). Positional Externalities Cause Large and Preventable Welfare Losses. American Economic Review, 95(2), 137-141.
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Mechanisms¶
- Spending Cap or Resource Cap
- Its strength is that it kills the arms-race dynamic in which escalating investment merely cancels out, preserving the useful pressure of rivalry while removing the wasteful part — and it levels the field, so outcomes track skill rather than bankroll.
This sourceShows how positional competition produces mutually offsetting expenditure escalation and welfare loss.
- Its strength is that it kills the arms-race dynamic in which escalating investment merely cancels out, preserving the useful pressure of rivalry while removing the wasteful part — and it levels the field, so outcomes track skill rather than bankroll.
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