Working Paper: CEPR ID: DP5844
Authors: Kai A. Konrad; Dan Kovenock
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 (multi-battle contests) and with varying opponents (elimination tournaments) and show that it reduces the strong discouragement effects and hold-up problems that may otherwise emerge in such games. High own ability dispersion selects such players into the contest and favors them in elimination contests.
Keywords: all-pay auction; conflict; contest; discouragement; elimination tournament; multistage race; random ability
JEL Codes: D72; D74
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ability dispersion (D39) | payoffs (J33) |
| ability dispersion (D39) | expected payoffs (J33) |
| ability dispersion (D39) | rival's performance (L15) |
| rival's performance (L15) | player's payoffs (C72) |