Limited Capacity in Project Selection: Competition Through Evidence Production

40 Pages Posted: 8 Apr 2014

See all articles by Raphael Boleslavsky

Raphael Boleslavsky

University of Miami - School of Business Administration - Department of Economics

Christopher Cotton

Queen's University, Department of Economics

Date Written: March 30, 2014

Abstract

A principal must decide whether to accept or reject each of two proposed projects. Each project is backed by an agent, who generates evidence about the quality of his proposal. Although agents control the informativeness of their evidence, they cannot distort or hide evidence from the principal once it is generated. Consistent with other models of 'Bayesian persuasion,' if the principal can implement both projects, the agents' ability to produce information does not benefit the principal. When the principal can accept only one proposal, however, the capacity constraint forces agents to compete. In response, the agents generate evidence that is more Blackwell informative than in the game without capacity constraints. We characterize the equilibrium under limited capacity, determining the effect of limited capacity on outcomes. Unless the prior strongly favors accepting both proposals, the principal is better off when capacity is limited.

Keywords: strategic search, evidence production, persuasion, lobbying, project selection, Bayesian persuasion, all-pay auction

JEL Classification: D72, D78, D83, L15

Suggested Citation

Boleslavsky, Raphael and Cotton, Christopher, Limited Capacity in Project Selection: Competition Through Evidence Production (March 30, 2014). Available at SSRN: https://ssrn.com/abstract=2421977 or http://dx.doi.org/10.2139/ssrn.2421977

Raphael Boleslavsky

University of Miami - School of Business Administration - Department of Economics ( email )

P.O. Box 248126
Coral Gables, FL 33124-6550
United States

Christopher Cotton (Contact Author)

Queen's University, Department of Economics ( email )

Dunning Hall 230
Kingston, Ontario K7L 3N6
Canada

HOME PAGE: http://www.christophercotton.ca

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
61
Abstract Views
425
rank
423,762
PlumX Metrics