Asymmetric Information in Common-Value Auctions and Contests: Theory and Experiments

In common-value auctions and contests economic agents often havevarying levels of information regarding the value of the good to be allocated.Using theoretical and experimental analysis, I examine the effect of suchinformation asymmetry on behavior.Chapter II considers a model in which players compete in two sequentialcontests. The winner of the first contest (the incumbent) privately observes thevalue of the prize, which provides private information if the prizes are related.Relative to the case where the prizes are independent, the incumbent is strictlybetter off, and the other contestants (the challengers) are strictly worse off.This increases the incentive to win the first contest such that the sum ofexpected effort over both contests increases relative to the case of independentprizes.Chapter III experimentally considers the role of asymmetric informationin first-price, sealed-bid, common-value auctions. Bidders who observe a private signal tend to overbid relative to Nash equilibrium predictions. Uninformedbidders, however, tend to underbid relative to the Nash equilibrium.Chapter IV examines asymmetric information in one-shot common-valueall-pay auctions and lottery contests from both experimental and theoreticalperspectives As predicted by theory, asymmetric information yields informationrents for the informed bidder in both all-pay auctions and lottery contests.