Competitive balance: Information disclosure and discrimination in an asymmetric contest

Derek J. Clark and Tapas Kundu

Journal of Economic Behavior & Organization, 2021, vol. 184, issue C, 178-198

Abstract: 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-disclosing 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 inextricably determines the choice of information disclosure. Applications are found in newcomer-incumbent situations in an internal labor market, sales-force management, and research contests.

Keywords: Asymmetric contest; Information design; Discrimination (search for similar items in EconPapers)
JEL-codes: D02 D72 D82 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:184:y:2021:i:c:p:178-198

DOI: 10.1016/j.jebo.2021.01.034

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