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Fighting for Lemons: The Encouragement Effect in Dynamic Contests with Private Information

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  • Juan Beccuti
  • Marc M ller

Abstract

This paper proposes a tractable model of a dynamic contest where players have private information about the contest s prize. We show that private information helps to encourage players who have fallen behind, leading to an increase in aggre- gate incentives. We derive the optimal information design for a designer interested in the maximization of aggregate effort. Optimal signals turn out to be private and imperfectly informative and aim to level the playing field at any stage of the dynamic interaction.

Suggested Citation

  • Juan Beccuti & Marc M ller, 2020. "Fighting for Lemons: The Encouragement Effect in Dynamic Contests with Private Information," Diskussionsschriften dp2017, Universitaet Bern, Departement Volkswirtschaft.
    • Handle: RePEc:ube:dpvwib:dp2017
    as

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    File URL: https://repec.vwiit.ch/dp/dp2017.pdf
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    References listed on IDEAS

    as
    1. Aner Sela & Oz Tsahi, 2020. "On the optimal allocation of prizes in best-of-three all-pay auctions," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 55(2), pages 255-273, August.
    2. A. Aiche & E. Einy & O. Haimanko & D. Moreno & A. Sela & B. Shitovitz, 2019. "Information in Tullock contests," Theory and Decision, Springer, vol. 86(3), pages 303-323, May.
    3. Dawei Fang & Thomas Noe & Philipp Strack, 2020. "Turning Up the Heat: The Discouraging Effect of Competition in Contests," Journal of Political Economy, University of Chicago Press, vol. 128(5), pages 1940-1975.
    4. Dmitry Ryvkin, 2011. "Fatigue in Dynamic Tournaments," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(4), pages 1011-1041, December.
    5. Jun Zhang & Junjie Zhou, 2016. "Information Disclosure in Contests: A Bayesian Persuasion Approach," Economic Journal, Royal Economic Society, vol. 126(597), pages 2197-2217, November.
    6. Dubey, Pradeep, 2013. "The role of information in contests," Economics Letters, Elsevier, vol. 120(2), pages 160-163.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Dynamic contests; discouragement effect; information design;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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