Optimal information disclosure in competing contests with budget constrained players

This paper studies optimal information disclosure in two competing contests where contestants face a constraint on their total effort contribution, or budget. The contestants are ex ante uninformed about the value of the prize to be allocated in one of the contests. Before the game starts, the designer of a contest with the unknown prize value chooses a public disclosure rule that maximizes the total effort exerted in her competition, and commits to it. We find that the optimal disclosure rule is generally not unique and can reveal (at least some) information to the contestants. In the absence of competition for effort among contests, the size of the budget has a non-monotonic effect on the designer’s incentives to share information. When competition for effort is at place, the designer’s incentives to share information decline with the size of the budget, which is driven by the substitution effect that forces contestants to reallocate their effort towards a competition with a higher perceived prize.