Eternal peace in the tug-of-war?

Samuel Häfner ()
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Samuel Häfner: University of St. Gallen

Economic Theory, 2022, vol. 74, issue 4, No 4, 1057-1101

Abstract: Abstract The tug-of-war in which single players repeatedly compete in all-pay auctions is known to have a non-cooperative Markov-perfect equilibrium in which neither player expends positive effort and the tug-of-war remains unresolved, provided that the winner and loser prizes, the tie-breaking rule, the lead required for victory, and the initial state are chosen appropriately. In this paper, we show that such peaceful equilibria do not exist if the tug-of-war is between teams with pairwise matched players. The reason for this phenomenon is that the members of the teams can externalize future effort costs while the single players cannot. For a restricted number of states, our analysis also highlights the impact of the discount factor on the expected trajectory of the tug-of-war, the dynamics of the expected effort, and the equilibrium utility.

Keywords: Contests; Teams; Tug-of-War (search for similar items in EconPapers)
JEL-codes: D72 D74 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s00199-020-01287-9

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