Limited capacity in project selection : competition through evidence production

An organization must decide which proposals to fund. In evaluating the proposals, the organization may rely on those applying for funding to produce evidence about the merits of their own proposals. We consider the role of a capacity constraint preventing the organization from funding all projects. Agents produce more (Blackwell) informative evidence about the merits of their proposals when there are capacity constraints. In a two agent model, we fully characterize the equilibrium under unlimited and limited capacity. Unless the prior strongly favors accepting both proposals, the funding organization is better off when its capacity is limited.