Competitive Balance: Information Disclosure and Discrimination in an Asymmetric Contest
34 Pages Posted: 27 Mar 2020 Last revised: 18 Aug 2020
Date Written: August 18, 2020
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-revealing 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 is in turn inextricably linked to the choice of information revelation. Applications are found in newcomer-incumbent situations in an internal labor market, sales-force management, and research contests.
Keywords: Asymmetric Contest, Information Design, Discrimination
JEL Classification: D02, D72, D82
Suggested Citation: Suggested Citation