Abstract
AbstractA contestant’s effort depends on her knowledge of her rival’s type. This knowledge is often limited in real-life contests. We propose a model where the principal of a contest has commitment power to verifiably disclose contestants’ types. We investigate the optimal disclosure policy to stimulate contestants’ efforts. Full disclosure stimulates more (less) effort than full concealment if high-types are more (less) likely than low-types. However, regardless of the likelihood of types, the optimal policy is that of contingent disclosure; it is optimal to commit to disclosing if both contestants are high types and concealing otherwise.
Highlights
Running relative performance contests is a popular way to stimulate workers’ efforts
Regardless of the likelihood of types, the optimal policy is that of contingent disclosure; it is optimal to commit to disclosing if both contestants are high types and concealing otherwise
We show that the optimal information disclosure, regardless of p, is to commit to disclosing contestants’ types if contestants are both high-types and concealing all other realizations of types
Summary
Running relative performance contests is a popular way to stimulate workers’ efforts. We call this situation an even contest, and its effort the “stimulated effort,” in contrast to an uneven contest and the “discouraged effort” where types differ.2 With these two building blocks in mind, consider the effect of the probability of high-types p on the optimal disclosure policy. We show that the optimal information disclosure, regardless of p, is to commit to disclosing contestants’ types if contestants are both high-types and concealing all other realizations of types. Such an optimal contingent disclosure policy improves upon the full disclosure and full concealment policies considered in Sect.
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