Diversification and Information in Contests

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 will be implemented ex post. The principal can credibly reveal some information about the technologies, affecting the agents’ choices. We characterize the optimal information disclosure policy, as a function of the set of possible information structures that the principal can implement and the agents’ prior beliefs about the technologies. The optimal policy can be maximally or partially revealing, or completely uninformative, depending on: (i) the option value of diversification; (ii) the quality of the principal’s information; and (iii) the extent of technological uncertainty. Our results can be applied to a variety of settings such as innovation contests, tournaments within organizations, and procurement, where competing agents are uncertain about the value of different possible technologies, projects, or ideas that they can develop.