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The value of commitment in contests and tournaments when observation is costly

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  • Morgan, John
  • Vardy, Felix

Abstract

We study the value of commitment in contests and tournaments when there are costs for the follower to observe the leader's behavior. In a contest, the follower can pay to observe the leader's effort but cannot observe the effectiveness of that effort. In a tournament, the follower can pay to observe the effectiveness of the leader's effort but not the effort itself. We show that this distinction matters significantly: When observation is costly, the value of commitment vanishes entirely in sequential and endogenous move contests, regardless of the size of the observation cost. By contrast, in tournaments, the value of commitment is preserved completely, provided that the observation costs are sufficiently small.
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  • Morgan, John & Vardy, Felix, 2007. "The value of commitment in contests and tournaments when observation is costly," Games and Economic Behavior, Elsevier, vol. 60(2), pages 326-338, August.
    • Handle: RePEc:eee:gamebe:v:60:y:2007:i:2:p:326-338
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    Cited by:

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    3. Hörtnagl, Tanja & Kerschbamer, Rudolf & Stracke, Rudi, 2019. "Competing for market shares: Does the order of moves matter even when it shouldn’t?," Journal of Economic Behavior & Organization, Elsevier, vol. 166(C), pages 346-365.
    4. Krasteva, Silvana & Yildirim, Huseyin, 2016. "Information, competition, and the quality of charities," Journal of Public Economics, Elsevier, vol. 144(C), pages 64-77.
    5. Magnus Hoffmann & Grégoire Rota‐Graziosi, 2020. "Endogenous timing in the presence of non‐monotonicities," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(1), pages 359-402, February.
    6. Hoffmann, Magnus & Rota-Graziosi, Grégoire, 2012. "Endogenous timing in general rent-seeking and conflict models," Games and Economic Behavior, Elsevier, vol. 75(1), pages 168-184.
    7. Caruso, Raul & Schneider, Friedrich, 2009. "Al Qaeda and Jihadist Terrorism in the Light of Contest Theory, Empirical Evidence for the period 2004-2008," MPRA Paper 15856, University Library of Munich, Germany.
    8. Migheli, Matteo, 2019. "Competing for promotion: Are “THE BEST” always the best?," Research in Economics, Elsevier, vol. 73(2), pages 149-161.
    9. Marco Serena, 2022. "Harnessing beliefs to optimally disclose contestants’ types," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 74(3), pages 763-792, October.
    10. Martin Kolmar & Andreas Wagener, 2013. "Inefficiency As A Strategic Device In Group Contests Against Dominant Opponents," Economic Inquiry, Western Economic Association International, vol. 51(4), pages 2083-2095, October.
    11. Brishti Guha, 2017. "Costly Leader Games with a Probabilistically Non-Strategic Leader," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 19(02), pages 1-14, June.
    12. Brady, Ryan R. & Insler, Michael A., 2019. "Order of play advantage in sequential tournaments: Evidence from randomized settings in professional golf," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 79(C), pages 79-92.
    13. Tanja Hörtnagl & Rudolf Kerschbamer, 2014. "How the Value of Information Shapes the Value of Commitment Or: Why the Value of Commitment Does Not Vanish," Working Papers 2014-03, Faculty of Economics and Statistics, Universität Innsbruck.
    14. Van Gorder, Robert A. & Caputo, Michael R., 2010. "Envelope theorems for locally differentiable open-loop Stackelberg equilibria of finite horizon differential games," Journal of Economic Dynamics and Control, Elsevier, vol. 34(6), pages 1123-1139, June.
    15. Christoffel Grechenig & Martin Kolmar, 2011. "The State’s Enforcement Monopoly and the Private Protection of Property," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2011_24, Max Planck Institute for Research on Collective Goods.
    16. Bhaskar, V., 2009. "Commitment and observability in a contracting environment," Games and Economic Behavior, Elsevier, vol. 66(2), pages 708-720, July.
    17. Cumbul, Eray, 2021. "Stackelberg versus Cournot oligopoly with private information," International Journal of Industrial Organization, Elsevier, vol. 74(C).
    18. Nava Kahana & Doron Klunover, 2017. "Sequential Lottery Contests with Multiple Participants," Working Papers tax-mpg-rps-2017-02, Max Planck Institute for Tax Law and Public Finance.
    19. Denter, Philipp & Morgan, John & Sisak, Dana, 2011. ""Where Ignorance is Bliss, 'tis Folly to be Wise": Transparency in Contests," Economics Working Paper Series 1128, University of St. Gallen, School of Economics and Political Science.
    20. Jindapon, Paan & Yang, Zhe, 2017. "Risk attitudes and heterogeneity in simultaneous and sequential contests," Journal of Economic Behavior & Organization, Elsevier, vol. 138(C), pages 69-84.
    21. John Morgan & Felix Várdy, 2013. "The Fragility of Commitment," Management Science, INFORMS, vol. 59(6), pages 1344-1353, June.
    22. Daniel Houser & Thomas Stratmann, 2012. "Gordon Tullock and experimental economics," Public Choice, Springer, vol. 152(1), pages 211-222, July.
    23. Caruso, Raul, 2008. "Al Qaeda as a Tournament: Empirical Evidence," MPRA Paper 11693, University Library of Munich, Germany.
    24. Bhaskar, Venkataraman, 2013. "Dynamic Countervailing Power under Public and Private Monitoring," CEPR Discussion Papers 9526, C.E.P.R. Discussion Papers.

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