Sequential All-Pay Auctions with Noisy Outputs

24 Pages Posted: 12 Aug 2011

See all articles by Ella Segev

Ella Segev

Ben-Gurion University of the Negev - Department of IE&M

Aner Sela

Ben-Gurion University of the Negev - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: August 2011

Abstract

We study a sequential all-pay auction with two contestants who are privately informed about a parameter (ability) that affects their cost of effort. In the model, contestant 1 (the first mover) exerts an effort in the first period which translates into an observable output but with some noise, and contestant 2 (the second mover) observes this noisy output. Then, contestant 2 exerts an effort in the second period, and wins the contest if her output is larger than or equal to the observed noisy output of contestant 1; otherwise, contestant 1 wins. We study two variations of this model where contestant 1 either knows or does not know the realization of the noise before she chooses her effort. Contestant 2 does not know the realization of the noise in both variations. For both variations, we characterize the subgame perfect equilibrium and investigate the effect of a random noise on the expected highest effort in this contest.

Keywords: Noisy outputs, Sequential contests

JEL Classification: D44

Suggested Citation

Segev, Ella and Sela, Aner, Sequential All-Pay Auctions with Noisy Outputs (August 2011). CEPR Discussion Paper No. DP8509, Available at SSRN: https://ssrn.com/abstract=1908557

Ella Segev (Contact Author)

Ben-Gurion University of the Negev - Department of IE&M ( email )

1 Ben-Gurion Blvd
Beer Sheva, 84105
Israel

Aner Sela

Ben-Gurion University of the Negev - Department of Economics ( email )

Beer-Sheva 84105
Israel
+972 8 647 2309 (Phone)
+972 8 647 2941 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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