HETEROGENEOUS CONTESTS AND LESS INFORMATIVE SIGNALS*

Hisaki Kono and Nobuyuki Yagi

The Japanese Economic Review, 2008, vol. 59, issue 1, 113-126

Abstract: We consider rank‐order contests with heterogeneous agents in which the principal is restricted to using a fair contest (or a symmetric contest), focusing on the optimal accuracy of output signals. As opposed to the absolute performance evaluation, we show that it is optimal for the principal to deliberately make the signals noisier according to the degree of heterogeneity. Some economic interpretations of controlling noise are discussed.

Date: 2008
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