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Contests With Stochastic Abilities

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  • KAI A. KONRAD
  • DAN KOVENOCK

Abstract

"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 (multibattle contests) and with varying opponents (elimination tournaments) and show that it reduces the strong discouragement effects and holdup problems that may otherwise emerge in such games. High own ability dispersion selects such players into the contest and favors them in elimination contests." ("JEL" D72, D74) Copyright (c) 2008 Western Economic Association International.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 48 (2010)
Issue (Month): 1 (01)
Pages: 89-103

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Handle: RePEc:bla:ecinqu:v:48:y:2010:i:1:p:89-103

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Cited by:
  1. Samuel Haefner, 2012. "Clausewitz on Auctions," Working papers 2012/12, Faculty of Business and Economics - University of Basel.
  2. Konrad, Kai A., 2007. "Strategy in contests: an introduction," Discussion Papers, Research Unit: Market Processes and Governance SP II 2007-01, Social Science Research Center Berlin (WZB).
  3. Martin Grossmann, 2011. "Endogenous Liquidity Constraints in a Dynamic Contest," Working Papers 0148, University of Zurich, Institute for Strategy and Business Economics (ISU).
  4. Kosmas Marinakis & Theofanis Tsoulouhas, 2012. "A comparison of cardinal tournaments and piece rate contracts with liquidity constrained agents," Journal of Economics, Springer, vol. 105(2), pages 161-190, March.
  5. Beviá, Carmen & Corchón, Luis C., 2013. "Endogenous strength in conflicts," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 297-306.
  6. Marinakis, Kosmas & Tsoulouhas, Theofanis, 2013. "Are tournaments optimal over piece rates under limited liability for the principal?," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 223-237.
  7. Oliver Gürtler, 2010. "Collusion in homogeneous and heterogeneous tournaments," Journal of Economics, Springer, vol. 100(3), pages 265-280, July.

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