Optimal Information Disclosure in Contests with Communication

Abstract

We study optimal information disclosure in static contests where players do not know their own values of winning but can learn them, publicly or privately, from the designer. The designer chooses a disclosure policy that maximizes the total expected effort, and commits to it before observing the realized value profile. A distinct feature of our model is that conditional on receiving private information from the designer, contestants can communicate with each other. We show that the contestants share their private information if and only if the values of winning are positively correlated. Since communication can result in an asymmetric contest associated with lower expected effort, the designer prefers concealment to any other disclosure policy available. This result is in a stark contrast with the no communication benchmark where private disclosure is best when the values of winning are sufficiently positively correlated.

Keywords: all-pay auction, information disclosure, communication, assortativity

JEL Classification: C72, D82, D83