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ENDOGENOUS TIMING IN CONTESTS WITH DELEGATION

Authors

  • KYUNG HWAN BAIK,

    1. Baik: Department of Economics, Sungkyunkwan University, Seoul, 110-745, South Korea. Phone +82-2-760-0432, Fax +82-2-760-0946, E-mail khbaik@skku.edu
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  • JONG HWA LEE

    1. Lee: Department of Economics, Sungkyunkwan University, Seoul, 110-745, South Korea. Phone +82-10-2762-1141, Fax +82-2-760-0946, E-mail jjonga31@skku.edu.
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    • An earlier version of this paper was circulated under the title, “Contests with Delegation: Endogenous Timing of Delegates' Exerting Effort.” We are grateful to Amy Baik, Oliver Gürtler, Sanggon Jeon, Jihyun Kim, Wooyoung Lim, Robert Ridlon, Nicholas Shunda, two anonymous referees, and seminar participants at Ulsan National Institute of Science and Technology for their helpful comments and suggestions. Earlier versions of this paper were presented at the 84th Annual Conference of the Western Economic Association International, Vancouver, B.C., July 2009; and the 2011 Annual Meetings of the Allied Social Science Associations, Denver, CO, January 2011. This work was supported by the National Research Foundation of Korea Grant funded by the Korean Government (NRF-2010-327-B00085).


Abstract

We study two-player contests in which each player hires a delegate, and the delegates decide endogenously when to expend their effort. First, we look closely at the delegates' decisions on when to expend their effort, given contracts between the players and the delegates, and look at the players' decisions on their contracts. Then, we compare the outcomes of the endogenous-timing framework with those of the simultaneous-move framework. We show that the higher-valuation player offers her delegate greater contingent compensation than her opponent, the delegate of the higher-valuation player chooses his effort level after observing his counterpart's, the equilibrium expected payoff of the delegate of the higher-valuation player is greater than that of his counterpart, and economic rent for each delegate exists. We show that, in the endogenous-timing framework, each player offers her delegate better contingent compensation, each delegate's expected payoff is greater, and each player's expected payoff is smaller, as compared with the simultaneous-move framework. (JEL D72)

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