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Limited capacity in project selection: competition through evidence production

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  • Raphael Boleslavsky

    () (University of Miami)

  • Christopher Cotton

    () (Queen’s University)

Abstract

Abstract An organization must decide which of two proposals to fund. In evaluating the proposals, the organization relies on the agents applying for funding to produce evidence about the merits of their own proposals. When the organization can fund all proposals, each agent engages in an independent game of Bayesian persuasion with the organization, choosing information strategies that maximize the probability of producing evidence in favor of funding. When the organization has limited capacity to implement proposals, the game becomes one of competitive Bayesian persuasion. Producing favorable evidence is not enough to secure funding; an agent must also produce more-favorable evidence than the other agent. We show that an organization’s limited capacity leads agents to produce more (Blackwell) informative evidence than they do when the organization is unconstrained. We fully characterize the unique equilibrium under unlimited and limited capacity, and show that unless the prior strongly favors accepting both proposals, the funding organization is better off when its capacity is limited. The analysis highlights similarities between competitive Bayesian persuasion games and all-pay auctions and generalized Colonel Blotto games.

Suggested Citation

  • Raphael Boleslavsky & Christopher Cotton, 2018. "Limited capacity in project selection: competition through evidence production," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 65(2), pages 385-421, March.
  • Handle: RePEc:spr:joecth:v:65:y:2018:i:2:d:10.1007_s00199-016-1021-0
    DOI: 10.1007/s00199-016-1021-0
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Toomas Hinnosaar & Keiichi Kawai, 2018. "Robust Pricing with Refunds," Papers 1808.02233, arXiv.org.
    2. Raphael Boleslavsky & Christopher Cotton & Haresh Gurnani, 2015. "Demonstrations and Price Competition in New Product Release," Working Papers 1347, Queen's University, Department of Economics.

    More about this item

    Keywords

    Search for evidence; Lobbying; Project selection; Competitive Bayesian persuasion; All-pay auction; General Lotto game;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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