Who Gains from Information Asymmetry?
Gil Epstein () and
No 2013-01, Working Papers from Bar-Ilan University, Department of Economics
This article considers an asymmetric contest with incomplete information. There are two types of players: informed and uninformed. Each player has a different ability to translate effort into performance in terms of the contest success function. While one player's type is known to both players, the other is private information and known only to the player himself. We compare the Bayesian Nash equilibrium outcome of a one-sided private information contest to the Nash equilibrium with no private information, in which both players know the type of the other player. We show conditions under which uncertainty increases the investment of the uninformed player and the rent dissipation of the contest, while decreasing the expected net payoff of the informed player. In addition, we consider conditions under which the informed player – before knowing his own type – prefers that the uninformed player knows his type. Moreover, we show conditions for the existence/non-existence of equilibrium in a two-stage contest in which the informed player declares his type (or does not declare) in the first stage and in the second stage the two players play according to the information available to them.
Keywords: Asymmetric contests; rent seeking; incomplete information (search for similar items in EconPapers)
JEL-codes: D72 C72 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cdm, nep-cta, nep-gth, nep-hpe and nep-mic
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Journal Article: Who gains from information asymmetry? (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:biu:wpaper:2013-01
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