Incomplete Information and Rent Dissipation in Deterministic Contests

*Rene Kirkegaard
Department of Economics, University of Guelph

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     Last modified: December 15, 2010
     Presentation date: 03/12/2011 2:45 PM in NH 1150, Session D
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Abstract
In a deterministic contest or all-pay auction, all rents are dissipated when information is complete and contestants are identical. As one contestant becomes "stronger", that is, values the prize more, total expenditures are known to decrease monotonically. Thus, asymmetry among contestants reduces competition and rent dissipation. Recently, this result has been shown to hold for other, non-deterministic, contest success functions as well, thereby suggesting a certain robustness. In this paper, however, the complete information assumption is shown to be crucial. With incomplete information -- regardless of how little -- total expenditures in a deterministic two-player contest increase when one contestant becomes marginally stronger, starting from a symmetric contest. In fact, both contestants expend resources more aggressively; with complete information, neither of them do so.