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Diversification and information in contests

Author

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  • Jorge Lemus

    (University of Illinois at Urbana-Champaign)

  • Emil Temnyalov

    (University Technology Sydney Business School)

Abstract

We study contests with technological uncertainty, where contestants can invest in different technologies of uncertain value. The principal, who is also uncertain about the value of the technologies, can disclose an informative yet noisy public signal about the merit of each technology. The signal can focus contestants’ investments into more promising technologies or increase diversification. We characterize the principal’s optimal disclosure of information about the technologies, which depends on the value of diversification, the informativeness of available signals, and the ex-ante beliefs of the likelihood of success for each technology. We also find that under some conditions offering larger prizes or having more contestants decreases the extent of information disclosure.

Suggested Citation

  • Jorge Lemus & Emil Temnyalov, 2024. "Diversification and information in contests," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 78(1), pages 263-294, August.
    • Handle: RePEc:spr:joecth:v:78:y:2024:i:1:d:10.1007_s00199-023-01532-x
    DOI: 10.1007/s00199-023-01532-x
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    Cited by:

    1. Letina, Igor & Liu, Shuo & Netzer, Nick, 2023. "Optimal contest design: Tuning the heat," Journal of Economic Theory, Elsevier, vol. 213(C).
    2. Christoph Carnehl & Johannes Schneider, 2021. "On Risk and Time Pressure: When to Think and When to Do," Papers 2111.07451, arXiv.org, revised Mar 2022.

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    More about this item

    Keywords

    Contests; Innovation; Diversification; Information;
    All these keywords.

    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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