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Markets and Politics |
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Johannes Münster
Repeated Contests with Asymmetric
Information
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The same contestants often meet repeatedly in contests. Behavior in
a contest potentially provides information with regard to one's type
and can therefore influence the behavior of the opponents in later
contests. This paper shows that if effort is observable, this can
induce a ratchet effect in contests: high ability contestants
sometimes put in little effort in an early round in order to make
the opponents believe that they are of little ability. The effect
reduces overall effort and increases equilibrium utility of the
contestants when compared with two unrelated one-shot contests. It
does, however, also introduce an allocative inefficiency since
sometimes a contestant with a low valuation wins. The model assumes
an imperfectly discriminating contest. In extension I show that,
qualitatively, results are similar in a perfectly discriminating
contest (all pay auction). |
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