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Wars of Attrition with Endogenously Determined Budget Constraints

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  • Foster Joshua

    (Economics Department, University of Wisconsin, Oshkosh, USA)

Abstract

This paper models a war of attrition where participants first choose contest investment levels that act as a constraint for how long they can compete. To include a measure of the resource’s transferability to other uses (e.g. other contests), expenditures are a convex combination of investment decisions and their ‘bid’ in the contest. It is shown in the symmetric equilibrium that participants use a mixed strategy for their resource investments and plan to exhaust those resources in the contest. Implications of an investment constraint on equilibrium strategies in a structured, tournament-style sequence of contests are also explored, where it is shown that increasing the number of contests in the tournament does not necessarily increase participants’ investments in expectation. These modifications to the standard model allow for important insights into a variety of pre-calculated and budgeted all-pay contests.

Suggested Citation

  • Foster Joshua, 2018. "Wars of Attrition with Endogenously Determined Budget Constraints," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 18(2), pages 1-10, July.
    • Handle: RePEc:bpj:bejtec:v:18:y:2018:i:2:p:10:n:17
    DOI: 10.1515/bejte-2016-0197
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    References listed on IDEAS

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    More about this item

    Keywords

    war of attrition; all-pay auction; contest design; budget constraints;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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