Working Paper: CEPR ID: DP8509
Authors: Ella Segev; Aner Sela
Abstract: We study a sequential all-pay auction with two contestants who are privately informed about a parameter (ability) that affects their cost of effort. In the model, contestant 1 (the first mover) exerts an effort in the first period which translates into an observable output but with some noise, and contestant 2 (the second mover) observes this noisy output. Then, contestant 2 exerts an effort in the second period, and wins the contest if her output is larger than or equal to the observed noisy output of contestant 1; otherwise, contestant 1 wins. We study two variations of this model where contestant 1 either knows or does not know the realization of the noise before she chooses her effort. Contestant 2 does not know the realization of the noise in both variations. For both variations, we characterize the subgame perfect equilibrium and investigate the effect of a random noise on the expected highest effort in this contest.
Keywords: noisy outputs; sequential contests
JEL Codes: D44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Magnitude of random noise (C58) | Contestant 1's effort (Y60) |
| Positive realization of noise (C58) | Contestant 1's equilibrium effort (C72) |
| Negative realization of noise (D89) | Contestant 1's equilibrium effort (C72) |
| Magnitude of random noise (C58) | Contestant 1's decision-making process (D79) |
| Noise approaching zero (C58) | Marginal effect on effort strategies (D29) |