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The value of commitment in contests and tournaments when observation is costly

  • Morgan, John
  • Vardy, Felix

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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Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 60 (2007)
Issue (Month): 2 (August)
Pages: 326-338

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Handle: RePEc:eee:gamebe:v:60:y:2007:i:2:p:326-338
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622836

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  1. Avinash Dixit, 1999. "Strategic Behavior in Contests: Reply," American Economic Review, American Economic Association, vol. 89(3), pages 694-694, June.
  2. Oechssler, Jörg & Schlag, Karl H., 1997. "Loss of commitment? An evolutionary analysis of Bagwell's example," SFB 373 Discussion Papers 1997,39, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
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  9. Georg Kirchsteiger & Werner Güth & Klaus Ritzberger, 1998. "Imperfectly observable commitments in n-player games," ULB Institutional Repository 2013/5907, ULB -- Universite Libre de Bruxelles.
  10. Baye, Michael R & Kovenock, Dan & de Vries, Casper G, 1994. "The Solution to the Tullock Rent-Seeking Game When R Is Greater Than 2: Mixed-Strategy Equilibria and Mean Dissipation Rates," Public Choice, Springer, vol. 81(3-4), pages 363-80, December.
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  22. Kyle Bagwell, 1992. "Commitment and Observability in Games," Discussion Papers 1014, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  23. Gradstein, Mark & Konrad, Kai A, 1999. "Orchestrating Rent Seeking Contests," Economic Journal, Royal Economic Society, vol. 109(458), pages 536-45, October.
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