When to disclose the number of contestants: Theory and experimental evidence

Abstract

This paper investigates whether it is optimal for a contest organizer to disclose the actual number of contestants for total effort optimization when entry in a contest is costly and endogenous. Our model suggests that in a Tullock (1980) contest, the answer depends on the convexity of the cost of effort function. Even though the equilibrium entry rate and rent dissipation are invariant to the disclosure policy, disclosing (concealing) the actual number of entrants can lead to a higher total effort when the cost function is concave (convex). To test these theoretical predictions, we design a 2×3 between-subjects laboratory experiment using lottery contests. We vary the disclosure policy (fully disclosed vs. fully concealed) in one dimension and the curvature of the cost of effort function (concave, linear, or convex) in the other dimension. Our results are largely consistent with the theoretical predictions regarding the optimal disclosure policy, despite the presence of moderate over-entry and over-exertion behavior that is commonly observed in experimental studies of contests.