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Voluntary disclosure in unfair contests


Ewerhart, Christian; Grünseis, Julia (2018). Voluntary disclosure in unfair contests. Working paper series / Department of Economics 279, University of Zurich.

Abstract

This paper studies incentives for the interim voluntary disclosure of verifiable information in probabilistic all-pay contests. Considered are unfair contests, i.e., contests in which, subject to activity conditions, one player (the favorite) is interim always more likely to win than the other player (the underdog). A condition is identified that ensures that a given contest is unfair regardless of disclosure decisions. Under this condition, full revelation is the unique perfect Bayesian equilibrium outcome of the contest with pre-play communication. This is so because the weakest type of the underdog will try to moderate the favorite, while the strongest type of the favorite will try to discourage the underdog - so that the contest unravels. We also show that self-disclosure may, with positive probability, provoke unintended reactions, i.e., "dominant" or "defiant" behavior. Moreover, while individually rational for the marginal type, the unraveling may be strictly Pareto inferior from an ex-ante perspective. Our main conclusion is just the opposite of the corresponding finding for the deterministic all-pay auction. The proofs employ lattice-theoretic methods and an improved version of Jensen's inequality.

Abstract

This paper studies incentives for the interim voluntary disclosure of verifiable information in probabilistic all-pay contests. Considered are unfair contests, i.e., contests in which, subject to activity conditions, one player (the favorite) is interim always more likely to win than the other player (the underdog). A condition is identified that ensures that a given contest is unfair regardless of disclosure decisions. Under this condition, full revelation is the unique perfect Bayesian equilibrium outcome of the contest with pre-play communication. This is so because the weakest type of the underdog will try to moderate the favorite, while the strongest type of the favorite will try to discourage the underdog - so that the contest unravels. We also show that self-disclosure may, with positive probability, provoke unintended reactions, i.e., "dominant" or "defiant" behavior. Moreover, while individually rational for the marginal type, the unraveling may be strictly Pareto inferior from an ex-ante perspective. Our main conclusion is just the opposite of the corresponding finding for the deterministic all-pay auction. The proofs employ lattice-theoretic methods and an improved version of Jensen's inequality.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:C72, D74, D82, J71
Uncontrolled Keywords:Unfair contests, incomplete information, self-disclosure, unraveling, strategic complements and substitutes, dominance and defiance
Language:English
Date:February 2018
Deposited On:14 Feb 2018 16:38
Last Modified:31 Jul 2018 05:10
Series Name:Working paper series / Department of Economics
Number of Pages:65
ISSN:1664-7041
OA Status:Green
Official URL:http://www.econ.uzh.ch/static/wp/econwp279.pdf
Related URLs:http://www.econ.uzh.ch/static/workingpapers.php

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