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Who Gains from Information Asymmetry?

Author

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  • Gil S. Epstein

    (Bar-Ilan University)

  • 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.

Suggested Citation

  • Gil S. Epstein & Yosef Mealem, 2013. "Who Gains from Information Asymmetry?," Working Papers 2013-01, Bar-Ilan University, Department of Economics.
  • Handle: RePEc:biu:wpaper:2013-01
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    References listed on IDEAS

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    9. Gil S. Epstein & Shmuel Nitzan, 2006. "Effort and Performance in Public Policy Contests," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(2), pages 265-282, May.
    10. Gil S. Epstein & Shmuel Nitzan, 2007. "Endogenous Public Policy and Contests," Springer Books, Springer, number 978-3-540-74818-2, November.
    11. Epstein, Gil S & Nitzan, Shmuel, 2002. "Asymmetry and Corrective Public Policy in Contests," Public Choice, Springer, vol. 113(1-2), pages 231-240, October.
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    Cited by:

    1. Christian Ewerhart & Federico Quartieri, 2020. "Unique equilibrium in contests with incomplete information," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 70(1), pages 243-271, July.
    2. Anna Katharina Provasnek & Erwin Schmid & Gerald Steiner, 2018. "Stakeholder Engagement: Keeping Business Legitimate in Austria’s Natural Mineral Water Bottling Industry," Journal of Business Ethics, Springer, vol. 150(2), pages 467-484, June.
    3. Heijnen, Pim & Schoonbeek, Lambert, 2019. "Rent-seeking with uncertain discriminatory power," European Journal of Political Economy, Elsevier, vol. 56(C), pages 103-114.
    4. Christian Ewerhart & Julia Lareida, 2018. "Voluntary disclosure in asymmetric contests," ECON - Working Papers 279, Department of Economics - University of Zurich, revised Jan 2021.
    5. Alejandro Melo Ponce, 2018. "The Secret Behind The Tortoise and the Hare: Information Design in Contests," 2018 Papers pme809, Job Market Papers.
    6. Clark, Derek J. & Kundu, Tapas, 2021. "Competitive balance: Information disclosure and discrimination in an asymmetric contest," Journal of Economic Behavior & Organization, Elsevier, vol. 184(C), pages 178-198.
    7. Marco Serena, 2022. "Harnessing beliefs to optimally disclose contestants’ types," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 74(3), pages 763-792, October.
    8. Luke Boosey & Philip Brookins & Dmitry Ryvkin, 2020. "Information Disclosure in Contests with Endogenous Entry: An Experiment," Management Science, INFORMS, vol. 66(11), pages 5128-5150, November.
    9. Clark, Derek J. & Kundu, Tapas, 2021. "Partial information disclosure in a contest," Economics Letters, Elsevier, vol. 204(C).
    10. Marco Serena, 2017. "Harnessing Beliefs to Stimulate Efforts; on the Optimal Disclosure Policy in Contests," Working Papers tax-mpg-rps-2018-11, Max Planck Institute for Tax Law and Public Finance.

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    More about this item

    Keywords

    Asymmetric contests; rent seeking; incomplete information;
    All these keywords.

    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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