BAYESIAN PERSUASION WITH PRIVATE EXPERIMENTATION

This article studies a situation in which a sender tries to persuade a receiver by providing hard evidence that is generated by sequential private experimentation where the sender can design the properties of each experiment contingent on the experimentation history. The sender can selectively reveal as many outcomes as desired. We determine the set of equilibria that are not Pareto‐dominated. In each of these equilibria under private experimentation, the persuasion probability is lower and the receiver obtains access to higher quality information than under public experimentation. The decision quality improves in the sender's stakes.     

Reputational cheap talk with misunderstanding

We consider a cheap talk game with a sender who has a reputational concern for an ability to predict a state of the world correctly, and where receivers may misunderstand the message sent. When communication between the sender and each receiver is private, we identify an equilibrium in which the sender only discloses the least noisy information. Hence, what determines the amount of information revealed is not the absolute noise level of communication, but the extent to which the noise level may vary. The resulting threshold in transmission noise for which information is revealed may differ across receivers, but is unrelated to the quality of the information channel. When information transmission has to be public, a race to the bottom results: the cut-off level for noise of transmitted information now drops to the lowest cut-off level for any receiver in the audience.     

THE FACE VALUE OF ARGUMENTS WITH AND WITHOUT MANIPULATION

A sender wishes to persuade a receiver with a (surprising) result that challenges the prior belief. The result stems either from sequential private experimentation or manipulation. The incentive to experiment and to manipulate depends on the quality threshold for persuasion. Higher thresholds make it harder to find a surprising outcome via experimentation and may encourage manipulation. Suppose there are observable nonmanipulable and manipulable research methods. For the decision quality, the quality threshold for persuasion for nonmanipulable methods should be higher than for manipulable methods. We discuss philosophy of science implications, such as field contingent quality standards and P‐value adjustments.     

Cheap talk with two senders and complementary information

This paper studies a cheap talk model in which two senders having partial and non-overlapping private information simultaneously communicate with an uninformed receiver. The sensitivity of the receiverʼs ideal action to one senderʼs private information depends on the other senderʼs private information. We show that the sendersʼ information transmissions exhibit strategic complementarity: more information transmitted by one sender leads to more information being transmitted by the other sender.     

Informal communication

The typical sender-receiver game studied in the literature assumes that receiver is uninformed. I analyze a model where receiver has private information and sender cares to be perceived as honest. If sender's honesty concerns are strong enough, the model predicts information revelation as a unique equilibrium. This uniqueness result contrasts with the multiplicity of equilibria in games with uninformed receiver. To achieve information revelation as a unique equilibrium, receiver may have to ask for information, which is extraneous for her decision. If sender's honesty concerns are not too strong, asking for extraneous information may create an incentive for lying.     

Screening and Signaling in Communication*

In this paper, we analyze a model of repeated strategic communication between a sender and a receiver. The sender has private information on a policy‐relevant variable but does not know the receiver's motives. Together with the desire of the sender to please the receiver and the desire of the receiver to be pleased, the two‐sided incomplete information creates an interesting communication problem in which players can choose to use information strategically. We analyze various modes of communication, which allow for information transmission, and we compare them in terms of both the quality of the policy implemented and the welfare of the players.     

Endogenous timing in private and mixed duopolies with emission taxes

This paper examines an endogenous timing game in product differentiated duopolies under price competition when emission tax is imposed on environmental externality. We show that a simultaneous-move (sequential-move) outcome can be an equilibrium outcome in a private duopoly under significant (insignificant) environmental externality, but this result can be reversed in a mixed duopoly. We also show that when environmental externalities are significant, public leadership yields greater welfare than private leadership, and that public leadership is more robust than private leadership as an equilibrium outcome. Finally, we find that privatization can result in a public leader becoming a private leader, but this worsens welfare.     

Endogenous Timing in Mixed Duopolies With Externality

We investigate endogenous timing in a mixed duopoly with a negative externality. We find that quantity (price) competition yields a simultaneous‐move (sequential‐move) outcome under a significant negative externality. These results indicate that mixed duopolies yield the same results as private duopolies under a significant negative externality, which is in sharp contrast to the results in mixed duopolies without a negative externality. Unless the negative externality is insignificant, public leadership yields greater welfare than private leadership, and public leadership is more robust than the private leadership as equilibrium. If optimal environmental tax policy is introduced, however, private leadership yields the greatest welfare and this an equilibrium outcome in the endogenous timing game under quantity competition.     

Morale,performance and disclosure

We study the optimal disclosure policy in a sender–receiver communication game where the receiver's morale, defined as his expected state of the world, affects his performance. The sender observes the state and chooses whether to disclose it to the receiver, who then decides whether to participate in a task. The receiver wins if his performance in the task meets a target. No disclosure is optimal if the receiver wins with average morale in each state. Otherwise, in the threshold disclosure equilibrium that Pareto-dominates full disclosure, the receiver quits as the sender discloses the worst states and wins as the sender withholds the rest. The receiver wins in more states in the Pareto-optimal equilibrium as the sender chooses a non-monotonic disclosure policy. Our theory reveals a trade-off between transparency and efficiency when morale affects performance. It has applications in a broad range of areas including military, family, education and business.     

Private information,Coasian bargaining,and the second welfare theorem

Most of the debate about Coasian bargaining in the presence of externalities relates to the First Welfare Theorem: is the outcome under bargaining efficient? This debate has involved the definition and importance of transaction costs, the significance of private information, and the effect of entry. There has been little analysis of how Coasian bargaining relates to the Second Welfare Theorem: even if the bargaining outcome is efficient, does the process limit the set of Pareto optimal allocations which can be achieved?We consider a model in which individuals utilize a common resource and may affect each other's output. The individuals differ in their productivities or tastes and this information is private to each of them. The government can manage the common resource and use nonlinear taxes to correct for the externality or it can turn the common resource over to a private owner who can charge individuals to utilize it with a nonlinear fee schedule. The government and the owner have the same information about tastes and productivities of the individuals. Except for the private information, there are no bargaining or administrative costs for collecting the taxes or fees. Whether there is public or private ownership, the government desires to redistribute, but it faces self-selection constraints.We show that the outcome of Coasian bargaining is constrained Pareto efficient. That is, given the information constraints, no Pareto improvement is possible. However, private ownership may limit what Pareto optimal allocations the government can achieve. The private owner in seeking to maximize profits always proposes contracts which counteract the government's attempts to redistribute across individuals with different characteristics. Under public management, any Pareto optimum can be sustained. In this context, private ownership, while not inefficient, does limit the government's ability to redistribute.     

Why does private consumption rise after a government spending shock?

Abstract.  Some recent empirical evidence suggests that private consumption is crowded-in by government spending. This outcome violates neoclassical macroeconomic theory, according to which the negative wealth effect brought about by a rise in public expenditure should decrease consumption. In this paper, we develop a simple real business cycle model where preferences depend on private and public spending, and households are habit forming. The model is estimated by the maximum-likelihood method using U.S. data. Estimation results indicate a strong Edgeworth complementarity between private and public spending. This feature enables the model to generate a positive response of consumption following a government spending shock. In addition, the impulse-response functions generated by the estimated model are generally consistent with those obtained from a benchmark vector autoregression.     

The Optimal Privatization Policies under an International Mixed Duopoly

This paper explores the socially optimal privatization policies under the setting of international mixed duopoly. We find that partial privatization is socially optimal under Cournot competition and private leadership competition, whereas full nationalization is socially optimal under public leadership competition. Moreover, the equilibrium social welfare under private leadership competition is higher than that observed under Cournot competition and that observed under private leadership competition, which differs from the findings of Matsumura ( 2003b ). We also show that the endogenous timing game has a subgame perfect Nash equilibrium outcome, under which the government chooses a partial privatization policy, and private leadership competition emerges as the optimal output decision sequence of firms. An important policy implication from this paper is that the government should partially privatize the public firm and facilitate the emergence of private leadership competition in an international mixed market.     

Crowding out and crowding in: When does redistribution improve risk-sharing in limited commitment economies?

When the risk of default constrains financial contracts, public insurance policies can significantly affect private risk-sharing. This is because by changing income expectations and volatility, redistribution changes the attractiveness of default and thus endogenous borrowing constraints. Extending results by Krueger and Perri (2011) [8], this paper analyses the conditions under which redistribution can improve private insurance by making default less attractive to the income-rich, whose income it reduces. I first explain why public redistribution typically crowds out private insurance in the two-income economy, and identify the role of income persistence and saving after default. Second, I show how, in endowment economies with three income states or more and in economies with capital, redistributive taxes can improve, or “crowd in”, private consumption insurance. Finally, in a quantitative exercise using a realistic income process calibrated to US micro-data, moderate redistribution crowds in private insurance with production but not in an endowment economy.     

A Political Economy Application of the “Tragedy of the Anticommons”: The Greek Government Debt Crisis

The tragedy of the anticommons unfolds when separate social agents—be they private owners of a property who intend to use the property for their own economic benefit or political actors who pursue their political objectives—do not hold effective rights to use their economic or political power for their own purposes without consent of the other players of the economic or political game. I shall discuss the Greek government debt crisis and the Eurozone countries’ policies toward Greece within the analytical framework of the tragedy of the anticommons in this paper. I do not intend to dig deep into the structure and long-term trends of public and private finances in Greece. I shall only show that the successive bail-out programs of the Eurozone countries were doomed to fail because of these countries’ competitive and non-cooperative approach to the Greek financial problems. I shall also show that a coordinating agency, say the IMF, can foster the coordinated outcome only under strict informational conditions.     

Simultaneous versus sequential knowledge transfer in an organization

This paper studies an organizational knowledge sharing process which requires costly “teaching” and “learning” efforts on the part of the sender and receiver, respectively. The process is a team problem in which the principal rewards successful sharing by optimally rewarding performance. In this setting we compare two modes of knowledge transfer with regard to efficiency. The first is sequential in which the sender precommits to teaching and the receiver acts as a follower. The second is simultaneous where each agent simultaneously exerts effort. A key result is that the sequential mode dominates when teaching and learning are complements, but the simultaneous mode dominates if teaching and learning are substitutes.     

Woodsy the optimal owl: Environmental campaigns, norms, and implications for public goods policy

Norms regarding private provision of a public good (e.g. cutting down on energy use, not littering) can affect the marginal gains from contributing to a public good and therefore people's decisions about contributing to the public good. A model is proposed in which norms of private contributions to a public good can be influenced by public policy, and these norms affect people's self-image, which derives from a comparison of one's own contribution with the norm contribution. In this context, we examine the conditions under which private contributions to a public good are efficient, and the conditions under which policy affecting these norms improves social welfare. We find that (1) a benevolent social planner who fails to account for private provision norms will underprovide the public good, and (2) public policy that attempts to raise the norm contribution of private provision can increase social welfare if the effect of raising the norm does not have an extreme negative effect - either extremely small or extremely large - on peoples' self-image.     

Quality undersupply and oversupply

I analyze a market in which a price-taking buyer buys a variable-quality good from a population of sellers, contrasting the case where quality is a seller's private information to that where it is public information. Average quality traded under private information can be either higher (quality oversupply) or lower (quality undersupply) than under public information, depending on sellers’ preferences. We are likely to see quality undersupply if (i) sellers’ preferences exhibit substitutability between the variable-quality good and the numéraire good, and/or (ii) sellers view the numéraire good as a luxury good relative to the variable-quality good. Reverse arguments hold for quality oversupply.     

Why is free education so popular? A political economy explanation

This paper analyzes the political support for different funding regimes of education in a one‐person, one‐vote democracy. We focus the analysis on four systems that have had a preponderant presence in the political debate on education: a private system, a public system that delivers the same resources to each student (universal‐free education), a public system that intends to equalize results, and a public system that aims to maximize the output of the economy. We show that a system of universal free education is the Condorcet winner. The level of income inequality and the degree to which income distribution is skewed to the right are key factors behind this conclusion. We also show that the voting outcome of public versus private funding for education depends crucially on the type of public funding under consideration.     

Perturbed communication games with honest senders and naive receivers

This paper studies communication games in which the sender is possibly honest (tells the truth) and the receiver is possibly naive (follows messages as if truthful). The characterization of message-monotone equilibria in the perturbed games explain several important aspects of strategic communication including sender exaggeration, receiver skepticism and message clustering. Surprisingly, the strategic receiver may respond to more aggressive claims with more moderate actions. In the limit as the probabilities of the non-strategic players approach zero, (i) the limit equilibrium corresponds to a most-informative equilibrium of the limit (Crawford-Sobel) game; (ii) only the top messages are sent.