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.
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Acknowledgements
We thank the Editor, Associate Editor and two anonymous referees for their constructive comments. We also thank seminar and conference participants at APIOC 2018, IIOC 2019, EARIE 2019, Jornadas de Economía Industrial (2019), the Midwest Economic Theory conference, SAET 2021, EEA-ESEM 2022, CEMFI/UC3M, the University of Melbourne, the University of Tokyo and the University of Toronto Rotman School of Business. Emil Temnyalov gratefully acknowledges financial support from the Australian Research Council’s Discovery Early Career Researcher Award (ARC DECRA) DE200100590.
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Lemus, J., Temnyalov, E. Diversification and information in contests. Econ Theory 78, 263–294 (2024). https://doi.org/10.1007/s00199-023-01532-x
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DOI: https://doi.org/10.1007/s00199-023-01532-x