Escalation in Dynamic Conflict: On Beliefs and Selection

53 Pages Posted: 13 Sep 2017 Last revised: 25 Oct 2017

See all articles by Kai A. Konrad

Kai A. Konrad

Max Planck Institute for Tax Law and Public Finance; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); IZA Institute of Labor Economics

Florian Morath

Department of Public Finance, University of Innsbruck; Max Planck Institute for Tax Law and Public Finance

Date Written: August 11, 2017

Abstract

We study a dynamic multi-stage contest that resolves in each stage only with a given probability. Assuming that there is unobservable heterogeneity in intrinsic motivations we derive properties of the equilibrium efforts across the different stages. Whereas in the corresponding complete information benchmark equilibrium efforts are stable across the stages, uncertainty about the type distribution of possible opponents generates learning. We identify reasons for dynamic adjustments of efforts caused by belief formation and updating and by selection of certain types into continuing conflict. A corresponding experimental setup provides evidence for escalation of efforts in later stages, for type heterogeneity, for belief formation and belief updating, and for self-selection. Overall, our results suggest the importance of an appropriate benchmark model when testing predictions on behavior in conflict or related strategic interactions.

Keywords: Dynamic con‡flict, lottery contest, heterogeneity, incomplete information, uncertainty, escalation, beliefs, selection, learning, experiment

JEL Classification: C90, D72, D74, D83

Suggested Citation

Konrad, Kai A. and Morath, Florian, Escalation in Dynamic Conflict: On Beliefs and Selection (August 11, 2017). Working Paper of the Max Planck Institute for Tax Law and Public Finance No. 2017-5, Available at SSRN: https://ssrn.com/abstract=3035287 or http://dx.doi.org/10.2139/ssrn.3035287

Kai A. Konrad (Contact Author)

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

HOME PAGE: http://www.tax.mpg.de/en/pub/home.cfm

Centre for Economic Policy Research (CEPR)

90-98 Goswell Road
London, EC1V 7RR
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, 81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, 53072
Germany

Florian Morath

Department of Public Finance, University of Innsbruck ( email )

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

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