Diversification and Information in Contests

Abstract

We study information disclosure and diversification in contests with technological uncertainty-where agents can pursue different technologies to compete in the contest, but there is uncertainty regarding which is the right one. The principal can credibly reveal information about the technologies to affect the agents' choices. Information revelation may prompt agents to work on the right technology, which is valuable for the principal, but it can also reduce technological diversification, which may be detrimental for the principal in a setting with technological uncertainty. We characterize the optimal information disclosure policy and show that it can be maximally or partially revealing, or completely uninformative, depending on: (i) the value of diversification; (ii) the quality of the principal's information; and (iii) the extent of technological uncertainty. Our results apply to various managerial settings such as innovation contests, tournaments within organizations, and procurement.

On Risk and Time Pressure: When to Think and When to Do

“…One strand of the literature dating back to Weitzman (1979) has considered several variants of Pandora's box problem as a proxy for finding the right innovation strategy (e.g., Fershtman and Rubinstein, 1997;Olszewski and Weber, 2015;Doval, 2018). Other works have been concerned with how competition affects the search for the right approach (e.g., Aghion et al, 2001;Akcigit and Liu, 2015;Letina, 2016;Lemus and Temnyalov, 2019). Our contribution to this literature is that we endogenize the available approaches by giving the agent the option to explore an alternative route.…”