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The Value of Commitment in Contests and Tournaments when Observation is Costly

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  • Felix Várdy

    (International Monetary Fund)

  • John Morgan

    (Haas School of Business & Department of Economics, UC Berkeley)

Abstract

We study the value of commitment in contests and tournaments when there are costs for the follower to observe the leader's behavior. In a contest, the follower can pay to observe the leader's effort but cannot observe the effectiveness of that effort. In a tournament, the follower can pay to observe the effectiveness of the leader's effort but not the effort itself. We show that this distinction matters significantly: When observation is costly, the value of commitment vanishes entirely in sequential and endogenous move contests, regardless of the size of the observation cost. By contrast, in tournaments, the value of commitment is preserved completely, provided that the observation costs are sufficiently small.

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Bibliographic Info

Paper provided by EconWPA in its series Public Economics with number 0504005.

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Length: 33 pages
Date of creation: 14 Apr 2005
Date of revision:
Handle: RePEc:wpa:wuwppe:0504005

Note: Type of Document - pdf; pages: 33
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Web page: http://128.118.178.162

Related research

Keywords: Contests; Tournaments; Rent-Seeking; Commitment; Costly Leader Games;

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References

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  2. Baik, Kyung H & Shogren, Jason F, 1992. "Strategic Behavior in Contests: Comment," American Economic Review, American Economic Association, vol. 82(1), pages 359-62, March.
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Citations

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Cited by:
  1. Fu, Qiang & Gürtler, Oliver & Münster, Johannes, 2013. "Communication and commitment in contests," Journal of Economic Behavior & Organization, Elsevier, vol. 95(C), pages 1-19.
  2. Hoffmann, Magnus & Rota Graziosi, Gregoire, 2010. "Endogenous Timing in General Rent-Seeking and Conflict Models," MPRA Paper 24084, University Library of Munich, Germany.
  3. Van Gorder, Robert A. & Caputo, Michael R., 2010. "Envelope theorems for locally differentiable open-loop Stackelberg equilibria of finite horizon differential games," Journal of Economic Dynamics and Control, Elsevier, vol. 34(6), pages 1123-1139, June.
  4. Caruso, Raul & Schneider, Friedrich, 2009. "Al Qaeda and Jihadist Terrorism in the Light of Contest Theory, Empirical Evidence for the period 2004-2008," MPRA Paper 15856, University Library of Munich, Germany.
  5. Caruso, Raul, 2008. "Al Qaeda as a Tournament: Empirical Evidence," MPRA Paper 11693, University Library of Munich, Germany.
  6. Daniel Houser & Thomas Stratmann, 2012. "Gordon Tullock and experimental economics," Public Choice, Springer, vol. 152(1), pages 211-222, July.
  7. Christoffel Grechenig & Martin Kolmar, 2011. "The State’s Enforcement Monopoly and the Private Protection of Property," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2011_24, Max Planck Institute for Research on Collective Goods.
  8. Tanja Hörtnagl & Rudolf Kerschbamer, 2014. "How the Value of Information Shapes the Value of Commitment Or: Why the Value of Commitment Does Not Vanish," Working Papers 2014-03, Faculty of Economics and Statistics, University of Innsbruck.
  9. Denter, Philipp & Morgan, John & Sisak, Dana, 2011. ""Where Ignorance is Bliss, 'tis Folly to be Wise": Transparency in Contests," Economics Working Paper Series 1128, University of St. Gallen, School of Economics and Political Science.
  10. Qiang Fu & Jingfeng Lu, 2012. "Micro foundations of multi-prize lottery contests: a perspective of noisy performance ranking," Social Choice and Welfare, Springer, vol. 38(3), pages 497-517, March.
  11. V. Bhaskar, 2005. "Commitment and Observability in an Economic Environment," Economics Discussion Papers 596, University of Essex, Department of Economics.
  12. Bhaskar, V., 2009. "Commitment and observability in a contracting environment," Games and Economic Behavior, Elsevier, vol. 66(2), pages 708-720, July.

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