A Simple Model of Competitive Testing
36 Pages Posted: 27 Apr 2015 Last revised: 30 Mar 2020
Date Written: March 29, 2020
A number of candidates are competing for a prize. Each candidate is privately informed about his type. The decision-maker who allocates the prize wants to give it to the candidate with the highest type. Each candidate can take a test that reveals his type at a cost. I show that an increase in competition increases information revelation when the cost is high, and reduces it when the cost is low. Nevertheless, the decision-maker always benefits from greater competition. Candidates can be better off if the cost is higher. Mandatory disclosure is Pareto-dominated by voluntary disclosure unless competition is low. Finally, when the test is noisier, candidates are more likely to take it.
Keywords: information disclosure, testing, competition
JEL Classification: D82, D83
Suggested Citation: Suggested Citation