Residents are more likely to win territorial disputes than intruders. One explanation for this prior resident advantage is that residents place a higher value on the resource and are therefore more motivated to win. Although value asymmetry models of animal contests often assume that contestants use information about resource value, information on the proximate cues affecting territorial behaviour is often lacking. We use a simple model system – territorial behaviour in the masked birch caterpillar (Drepana arcuata) to identify factors that affect territorial behaviour. Late instar caterpillars occupy solitary silken leaf shelters, which they defend against wandering conspecifics with a vibratory display. We evaluated how a caterpillar identifies itself as the owner and the factors that influence a resident's motivation to signal. To do so, we conducted three experiments between size-matched residents and intruders to assess how residency duration and shelter quality independently affected territorial displays during the early stages of a contest. Experiment 1 (Time Exp.) demonstrated that resident signalling rates increase with increased duration on the leaf prior to introducing the intruder. Residents also signal more than intruders after residency periods of 1–3 min and longer, demonstrating that residents gather information about resource value shortly after occupying a leaf. Experiment 2 (Squatter Exp.) aimed to disentangle the effects of time on the leaf and silk accumulation. Squatters (individuals in a shelter made by another) placed for 1–3 min on a leaf containing a full silk shelter signalled more to intruders than did caterpillars placed on a fresh leaf for 1–3 min. Experiment 3 (Shelter Removal Exp.) showed that residents whose shelters had been removed signal less than those occupying an intact shelter, despite an equal length of time investing in them. Our experiment is the first to covary both prior residency duration and territory quality, and we find that the motivation of caterpillars to signal is a function of both of these attributes.