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Continuois Time Contests

Authors
Publisher
Sonderforschungsbereich/Transregio 15 Governance and the Efficiency of Economic Systems München
Publication Date
Keywords
  • Ddc:330
  • Contests
  • All-Pay Contests
  • Silent Timing Games
  • Entscheidung Bei Risiko
  • Glücksspiel
  • Nichtkooperatives Spiel
  • Zeitökonomie
  • Theorie

Abstract

This paper introduces a contest model in which each player decides when to stop a privately observed Brownian motion with drift and incurs costs depending on his stopping time. The player who stops his process at the highest value wins a prize. Applications of the model include procurement contests and competitions for grants. We prove existence and uniqueness of the Nash equilibrium outcome, even if players have to choose bounded stopping times. We derive the equilibrium distribution in closed form. If the noise vanishes, the equilibrium outcome converges to - and thus selects - the symmetric equilibrium outcome of an all-pay auction. For two players and constant costs, each player's profits increase if costs for both players increase, variance increases, or drift decreases. Intuitively, patience becomes a more important factor for contest success, which reduces informational rents.

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