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Contests with stochastic abilities

Author

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  • Konrad, Kai A.
  • Kovenock, Dan

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. © 2008 Western Economic Association International.

Suggested Citation

  • Konrad, Kai A. & Kovenock, Dan, 2010. "Contests with stochastic abilities," Munich Reprints in Economics 22081, University of Munich, Department of Economics.
  • Handle: RePEc:lmu:muenar:22081
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    References listed on IDEAS

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    Cited by:

    1. Philip Brookins & Dmitry Ryvkin, 2014. "An experimental study of bidding in contests of incomplete information," Experimental Economics, Springer;Economic Science Association, vol. 17(2), pages 245-261, June.
    2. Yohan Pelosse, 2014. "Dynamic Difference-Form Contests," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(3), pages 401-426, June.
    3. Beviá, Carmen & Corchón, Luis C., 2013. "Endogenous strength in conflicts," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 297-306.
    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. Qiang Fu & Jingfeng Lu & Yue Pan, 2015. "Team Contests with Multiple Pairwise Battles," American Economic Review, American Economic Association, vol. 105(7), pages 2120-2140, July.
    6. Fu, Qiang & Jiao, Qian & Lu, Jingfeng, 2014. "Disclosure policy in a multi-prize all-pay auction with stochastic abilities," Economics Letters, Elsevier, vol. 125(3), pages 376-380.
    7. Kjell Hausken, 2014. "Individual versus overarching protection and attack of assets," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 22(1), pages 89-112, March.
    8. 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.
    9. Martin Grossmann, 2011. "Endogenous Liquidity Constraints in a Dynamic Contest," Working Papers 0148, University of Zurich, Institute for Strategy and Business Economics (ISU).
    10. Konrad, Kai A., 2007. "Strategy in contests: an introduction
      [Strategie in Turnieren – eine Einführung]
      ," Discussion Papers, Research Unit: Market Processes and Governance SP II 2007-01, Social Science Research Center Berlin (WZB).
    11. Oliver Gürtler, 2010. "Collusion in homogeneous and heterogeneous tournaments," Journal of Economics, Springer, vol. 100(3), pages 265-280, July.
    12. Kevin J. Boudreau & Nicola Lacetera & Karim R. Lakhani, 2011. "Incentives and Problem Uncertainty in Innovation Contests: An Empirical Analysis," Management Science, INFORMS, vol. 57(5), pages 843-863, May.

    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions

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