Open AccessCompetitive Balance: Information Disclosure and Discrimination in an Asymmetric Contest
Author(s) -
Derek J. Clark,
Tapas Kundu
Publication year - 2020
Publication title -
working paper in economics
Language(s) - English
Resource type - Journals
ISSN - 2535-6534
DOI - 10.7557/22.5618
Subject(s) - contest , commit , information asymmetry , redress , balance (ability) , principal (computer security) , microeconomics , mechanism design , economics , private information retrieval , computer science , psychology , computer security , political science , database , neuroscience , law
We study a design problem for an effort-maximizing principal in a two-player contest with two dimensions of asymmetry. Players have different skill levels and an information gap exists, as only one player knows the skill difference. The principal has two policy instruments to redress the lack of competitive balance due to asymmetry; she can commit to an information-revealing mechanism, and she can discriminate one of the players by biasing his effort. We characterize the optimal level of discrimination to maximize aggregate effort, showing how this is in turn inextricably linked to the choice of information revelation. Applications are found in newcomer-incumbent situations in an internal labor market, sales-force management, and research contests.