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Budget selection when agents compete

Eric Schmidbauer

Journal of Economic Behavior & Organization, 2019, vol. 158, issue C, 255-268

Abstract: A principal selects a budget K of how many projects to fund within an organization and then consults N agents, each of whom has private information about his own project’s value. After receiving cheap talk reports from the agents the principal decides which projects to implement subject to the budget, and agents report on new i.i.d. projects every period until the budget is exhausted. When the budget is small relative to the number of agents, each of whom are biased towards their own projects, competition between agents degrades the quality of information conveyed in equilibrium and lowers the principal’s payoff. A larger budget induces less competition and therefore may be selected in order to extract more information from the agents, even though this leads to some unprofitable projects being adopted. In an extension I find that a policy of never allowing a funded agent to seek funding again increases payoffs compared to when the agent can always re-seek funding.

Keywords: Competitive cheap talk; Multiple agents; Resource allocation; Asymmetric information (search for similar items in EconPapers)
JEL-codes: D23 D74 D82 G31 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.jebo.2018.11.021

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Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

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