Information Disclosure in Multistage Tournaments
21 Pages Posted: 8 Apr 2008
Abstract
Two agents participate in a tournament that has two stages: intermediate and final. The results of the intermediate stage are privately observed by the principal who organizes the tournament. Prizes for the winner and the loser are exogenously given, but the principal can enhance effort incentives by strategically disclosing the intermediate results. The paper characterizes the optimal disclosure policy. The policies that enhance final stage effort dampen incentives at the intermediate stage. The optimal disclosure policy balances this trade-off and has a simple form: disclosure only if both agents fail. This result suggests that the commonly discussed policies of "full disclosure" and "no disclosure" are both suboptimal.
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