CONTESTS WITH STOCHASTIC ABILITIES

Authors

  • KAI A. KONRAD,

    1. Konrad: Director, unit MPS, Social Science Research Center Berlin (WZB), Reichpietschufer 50, D-10785 Berlin, Germany. Phone +49-30-25491-402, Fax +49-30-25491-400, E-mail kkonrad@wz-berlin.de, and Professor, Department of Economics, Free University of Berlin, Boltzmannstrasse 20, D-14195 Berlin, Germany.
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  • DAN KOVENOCK

    1. Kovenock: Henry B. Tippie Research Professor of Economics, Department of Economics, University of Iowa, Iowa City, IA 52242. Phone (319) 335-1810, Fax (319) 335-1956, E-mail dan-kovenock@uiowa.edu
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    • *

      We thank Jason Abrevaya, Armin Falk, Matthias Kräkel, Benny Moldovanu, the participants of the Third IZA Prize Conference in Berlin and of an SFB conference in Bonn, and two reviewers of this journal for helpful comments. The usual caveat applies. Konrad acknowledges funding from the German Science Foundation (DFG, grant no. SFB-TR-15). Part of this work was completed, while Kovenock was Visiting Professor at the Social Science Research Center Berlin (WZB).


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 (multibattle contests) and with varying opponents (elimination tournaments) and show that it reduces the strong discouragement effects and holdup problems that may otherwise emerge in such games. High own ability dispersion selects such players into the contest and favors them in elimination contests. (JEL D72, D74)

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