Continuous Time Contests with Private Information

28 Pages Posted: 28 May 2011 Last revised: 28 Jun 2013

Christian Seel

Maastricht University

Philipp Strack

University of California, Berkeley - Department of Economics

Date Written: June 26, 2013

Abstract

This paper introduces a class of contest models in which each player decides when to stop a privately observed Brownian motion with drift and incurs costs depending on his stopping time. The player who stops his process at the highest value wins a prize. Potential applications include job promotion contests and procurement contests.

We prove existence and uniqueness of a Nash equilibrium outcome and derive the equilibrium distribution in closed form. If the noise vanishes, the equilibrium outcome converges to --- and thus selects --- the symmetric equilibrium outcome of an all-pay auction.

For two players and constant costs, each player's equilibrium profits decrease if all players are more productive. Intuitively, patience becomes a more important factor for contest success, which reduces informational rents.

Keywords: Contests, All-Pay Auctions, Silent Timing Games

JEL Classification: C72, C73, D81

Suggested Citation

Seel, Christian and Strack, Philipp, Continuous Time Contests with Private Information (June 26, 2013). Available at SSRN: https://ssrn.com/abstract=1852345 or http://dx.doi.org/10.2139/ssrn.1852345

Christian Seel (Contact Author)

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands
0031 433883651 (Phone)

Philipp Strack

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

HOME PAGE: http://philippstrack.com

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