“Managing Competitions Using Information: Disclosure Policy in Contests with Heterogeneous Players” by Jie Zheng
Sun Yat-sen University
Jaimie W. Lien
The Chinese University of Hong Kong
How can managers in organizations motivate competing workers when there is asymmetric information among the competitors? We consider the information disclosure policy of the manager as a contest designer in an all-pay auction, where one competitor's ability is public information, and the other competitor's ability is private information, known only to the competitor himself. We find that in order to optimally motivate the contestants, the manager will reveal the private information of the unknown competitor when the publicly known competitor's ability is sufficiently low. The information asymmetry among contestants creates a tradeoff between ability-based advantage, and information-based advantage, which managers can invoke when attempting to maximize the total effort of competing employees. However, in the case where the private competitor's ability is not directly verifiable, an incentive problem exists when enforcing the disclosure or concealment policy. Allowing the private competitor to condition his disclosure on his own realized ability can assist in aligning his incentives with the manager regarding the concealment policy, but not for the disclosure policy.