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Who gains from information asymmetry?

Author

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  • Gil Epstein

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  • Yosef Mealem

Abstract

This article considers an asymmetric contest with incomplete information. There are two types of players: informed and uninformed. Each player has a different ability to translate effort into performance in terms of the contest success function. While one player’s type is known to both players, the other is private information and known only to the player himself. We compare the Bayesian Nash equilibrium outcome of a one-sided private information contest to the Nash equilibrium with no private information, in which both players know the type of the other player. We show conditions under which uncertainty increases the investment of the uninformed player and the rent dissipation of the contest, while decreasing the expected net payoff of the informed player. In addition, we consider conditions under which the informed player—before knowing his own type—prefers that the uninformed player knows his type. Moreover, we show conditions for the existence/non-existence of equilibrium in a two-stage contest in which the informed player declares his type (or does not declare) in the first stage and in the second stage the two players play according to the information available to them. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Gil Epstein & Yosef Mealem, 2013. "Who gains from information asymmetry?," Theory and Decision, Springer, vol. 75(3), pages 305-337, September.
  • Handle: RePEc:kap:theord:v:75:y:2013:i:3:p:305-337
    DOI: 10.1007/s11238-013-9351-x
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    References listed on IDEAS

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    Cited by:

    1. Christian Ewerhart & Julia Grünseis, 2018. "Voluntary disclosure in unfair contests," ECON - Working Papers 279, Department of Economics - University of Zurich.

    More about this item

    Keywords

    Asymmetric contests; Rent seeking; Incomplete information; D72; C72;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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