Information in conflicts. (Q1399545)

Most of economic theory focuses on the analysis of voluntary market transactions with well- defined property rights. But many real-world market transactions involve an outright conflict. Here the effect of asymmetric information in such conflicts is investigated. A conflict itself is modeled as a two-player contest. It is supposed that in the contest the participants make efforts or expenditures in order to increase their probability of winnig a prize or object. A case of two agents competing for a price that would be of the same value to both if both knew the value with certainty, but it is assumed this value is uncertain. It is noted that from the point of view of auction theory the most interesting result in the paper is the mildly paradoxical observation that the uniformed player in an asymmetric information contest wins the object with stricly higher probability than the informed player, something that cannot happen in a first-price auction.