Multi-Stage Contests with Stochastic Ability
Kai A. Konrad
Max Planck Institute for Tax Law and Public Finance; Social Science Research Center Berlin (WZB); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Institute for the Study of Labor (IZA)
Chapman University - Economic Science Institute; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
CEPR Discussion Paper No. 5844
We consider the properties of perfectly discriminating contests in which players' abilities are stochastic, but become common knowledge before efforts are expended. Players whose expected ability is lower than that of their rivals may still earn a positive expected payoff from participating in the contest, which may explain why they participate. We also show that an increase in the dispersion of a player's own ability generally benefits this player. It may benefit or harm his rival, but cannot benefit the rival more than it benefits himself. We also explore the role of stochastic ability for sequential contests with the same opponent (multi-battle contests) and with varying opponents (elimination tournaments) and show that it reduces the strong discouragement effects and hold-up problems that may otherwise emerge in such games. High own ability dispersion selects such players into the contest and favors them in elimination contests.
Number of Pages in PDF File: 31
Keywords: All-pay auction, elimination tournament, contest, race, conflict, multi-stage, random ability, discouragement
JEL Classification: D72, D74working papers series
Date posted: November 16, 2006
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