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

Author

Listed:
  • 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.

Suggested Citation

  • Felix Várdy & John Morgan, 2005. "The Value of Commitment in Contests and Tournaments when Observation is Costly," Public Economics 0504005, EconWPA.
  • Handle: RePEc:wpa:wuwppe:0504005
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    References listed on IDEAS

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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. Qiang Fu & Jingfeng Lu, 2012. "Micro foundations of multi-prize lottery contests: a perspective of noisy performance ranking," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 38(3), pages 497-517, March.
    3. Krasteva, Silvana & Yildirim, Huseyin, 2016. "Information, competition, and the quality of charities," Journal of Public Economics, Elsevier, vol. 144(C), pages 64-77.
    4. Hoffmann, Magnus & Rota-Graziosi, Grégoire, 2012. "Endogenous timing in general rent-seeking and conflict models," Games and Economic Behavior, Elsevier, vol. 75(1), pages 168-184.
    5. 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.
    6. Martin Kolmar & Andreas Wagener, 2013. "Inefficiency As A Strategic Device In Group Contests Against Dominant Opponents," Economic Inquiry, Western Economic Association International, vol. 51(4), pages 2083-2095, October.
    7. repec:wsi:igtrxx:v:19:y:2017:i:02:n:s0219198917500086 is not listed on IDEAS
    8. Nava Kahana & Doron Klunover, 2017. "Sequential Lottery Contests with Multiple Participants," Working Papers tax-mpg-rps-2017-02, Max Planck Institute for Tax Law and Public Finance.
    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. Daniel Houser & Thomas Stratmann, 2012. "Gordon Tullock and experimental economics," Public Choice, Springer, vol. 152(1), pages 211-222, July.
    11. Ryan Brady & Michael Insler, 2017. "Order of Play Advantage in Sequential Tournaments: Evidence from randomized settings in professional golf," Departmental Working Papers 54, United States Naval Academy Department of Economics.
    12. Tanja H�rtnagl & 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.
    13. 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.
    14. Christoffel Grechenig & Martin Kolmar, 2011. "The State’s Enforcement Monopoly and the Private Protection of Property," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2011_24, Max Planck Institute for Research on Collective Goods.
    15. Bhaskar, V., 2009. "Commitment and observability in a contracting environment," Games and Economic Behavior, Elsevier, vol. 66(2), pages 708-720, July.
    16. repec:eee:jeborg:v:138:y:2017:i:c:p:69-84 is not listed on IDEAS
    17. Caruso, Raul, 2008. "Al Qaeda as a Tournament: Empirical Evidence," MPRA Paper 11693, University Library of Munich, Germany.
    18. Bhaskar, Venkataraman, 2013. "Dynamic Countervailing Power under Public and Private Monitoring," CEPR Discussion Papers 9526, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

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

    JEL classification:

    • H10 - Public Economics - - Structure and Scope of Government - - - General

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