information revelation in auctions with common and private values we explore the incentives to reveal verifiable private information when there are both common and private components to agents valuations and when private information is held in both dimensions when agents observe only one signal they have no incentive to reveal the signal because such a revelation would negate their information advantage however when agents observe multiple signals they may be incentivized to reveal certain signals that could lower their opponents bids and thereby result in a higher profit from other signals this paper shows that there exists an equilibrium with revelation of common value signals in standard auctions which is an efficient equilibrium that maximizes the social welfare and could provide the seller with a higher profit than a situation with no information revelation

viewpoint decision making in committees this article reviews recent developments in the theory of committee decision making a committee consists of self interested members who make a public decision by aggregating imperfect information dispersed among them according to a pre specified decision rule we focus on costly information acquisition strategic information aggregation and rules and processes that enhance the quality of the committee decision seeming inefficiencies of the committee decision making process such as over cautiousness voting and delay emerge as partial remedies to these incentive problems cet article passe en revue certains developpements recents dans la theorie de la prise de decision en comite un comite est defini comme un groupe de membres qui ont des interets particuliers et qui prennent une decision publique en agregeant une information imparfaite et dispersee a travers le groupe selon une regle de decision pre etablie les auteurs portent leur attention sur l acquisition couteuse d information l agregation de l information strategique et les regles et procedures qui accroissent la qualite de la decision en comite ce qui apparait comme des inefficacites du processus de prise de decision en comite sur precaution votes delais s avere etre des remedes partiels aux problemes d incitation

coarse thinking and persuasion we present a model of uninformative persuasion in which individuals think coarsely they group situations into categories and apply the same model of inference to all situations within a category coarse thinking exhibits two features that persuaders take advantage of i transference whereby individuals transfer the informational content of a given message from situations in a category where it is useful to those where it is not and ii framing whereby objectively useless information influences individuals choice of category the model sheds light on uninformative advertising and product branding as well as on some otherwise anomalous evidence on mutual fund advertising

r d and internal finance a panel study of small firms in high tech industries since joseph schumpeter economists have argued that internal finance should be an important determinant of r d expenditures yet almost without exception previous empirical studies have not found evidence of such a relation using newly available data the authors investigate this puzzle with a panel of 179 small firms in high tech industries under each estimation strategy they employ the authors find an economically large and statistically significant relationship between r d investment and internal finance their results are consistent with the view that because of capital market imperfections the flow of internal finance is the principal determinant of the rate at which small high tech firms acquire technology through r d copyright 1994 by mit press

sequential aggregation of verifiable information we introduce the notion of verifiable information into a model of sequential debate among experts who are motivated by career concerns we show that self censorship may hamper the eciency of information agg regation as experts withhold evidence contradicting the conventional wisdom in this case silence is telling and undermines the prevailing view over time if this view is incorrect as a result withholding arguments about the correct state of the world is only a temporary phenomenon and the probability of the correct state of the world being revealed always converges to one as the group of experts becomes large for small groups a simple mechanism the principal can use to improve decisionmaking is to appoint a devil s advocate

a model of expertise we study a model in which perfectly informed experts offer advice to a decision maker whose actions affect the welfare of all experts are biased and thus may wish to pull the decision maker in different directions and to different degrees when the decision maker consults only a single expert the expert withholds substantial information from the decision maker we ask whether this situation is improved by having the decision maker sequentially consult two experts we first show that there is no perfect bayesian equilibrium in which full revelation occurs when both experts are biased in the same direction it is never beneficial to consult both in contrast when experts are biased in opposite directions it is always beneficial to consult both indeed in this case full revelation may be induced in an extended debate by introducing the possibility of rebuttal

monetary stimulation bank relationship and innovation evidence from china using china s four trillion yuan stimulus package of 2008 4 trillion plan as an exogenous shock we find that monetary stimulation could benefit the real economy to some extent specifically compared with propensity score matched control firms firms more likely affected by the stimulus plan e g bank connected firms are granted with 18 to 24 more patents afterwards further evidence shows that the effect of monetary stimulation is more pronounced in firms with financial constraints in firms located in regions with lower house price growth and in firms with better corporate governance finally monetary stimulation also increases r d expenditure leaving innovation efficiency unaffected

strategic information revelation we analyze the problem in which agents have non public information and are to play an asymmetric information game the agents may reveal some or all of their information to other agents prior to playing this game revelation is via exogenously specified certifiable statements the equilibria resulting from various revelation strategies are used to determine equilibrium revelation of information sufficient conditions are provided for complete revelation of all private information a number of examples are provided illustrating when revelation will or will not occur in commonly analyzed games many economic problems are characterized by the presence of both strategic behaviour on the part of individuals and by asymmetric information models encompassing both of these characteristics have been used successfully to examine questions in many fields usually using the concept of bayesian nash equilibrium as the solution concept typically the agents information is given exogenously and is fixed throughout the analysis modelling the information structure as static is appropriate for some problems but not for all in particular situations that are inherently dynamic most economic encounters allow for some interchange between the agents before the outcome is settled irrevocably in such circumstances it is possible that at least one or more of the agents possessing non public information may be able to reveal part or all of his information to one or all of the other agents in the economy during the course of their contact to the extent that such a communication is believed by the other agents the priors of the other agents will change and we will have what is in essence a new asymmetric information game new in

opinions as incentives we study costs and benefits of differences of opinion between an adviser and a decision maker even when they share the same underlying preferences over decisions a difference of opinion about payoff relevant information leads to strategic information acquisition and transmission a decision maker faces a fundamental trade off a greater difference of opinion increases an adviser s incentives to acquire information but exacerbates the strategic disclosure of any information that is acquired nevertheless when choosing from a rich pool of opinion types it is optimal for a decision maker to select an adviser with some difference of opinion centralization of authority is essential to harness these incentive gains since delegation to the adviser can discourage effort

what the seller won t tell you persuasion and disclosure in markets imagine that you are considering an investment in a new public offering of a firm s shares the firm s officers make a presentation that includes an audited financial statement an earnings forecast reviewed by its prestigious investment bankers and an impressive demonstration of its new technology or suppose that you are buying a new furnace to replace an old one that is not working well the salesman displays a chart showing that the projected total life cycle cost of one particular model including capital costs and fuel usage over the projected lifetime of the furnace is lower than that of some competing models you have considered this paper reviews the theoretical arguments about how sellers disclose information in an attempt to encourage buyers and the potential role for regulation in encouraging efficient disclosure of information how well does a system of private reporting work when should we expect all the relevant information to be reported if testing and reporting by the seller are costly will too little testing and reporting be done or too much when some information is withheld what sort of information is withheld how do rational buyers respond to such withholding how are prices and welfare affected what role is there for laws and regulations to improve the functioning of markets we address these questions by studying the theory of persuasion games games in which one or more sellers provide verifiable information to buyers to influence the actions they take

hedging price risk with options and futures for the competitive firm with production flexibility when some input decisions can be made after price is realized separation between production and hedging decisions still holds only under limited circumstances under the assumption of a restricted profit function that is quadratic in price the optimal futures hedge of a risk averse firm equals expected output and a short straddle position is desirable assuming that futures and options prices are unbiased in this case the use of options not only raises expected utility by reducing income risk but also affects the firm s input decisions in general copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

news management and the value of firms the literature on asymmetric information has been concerned mainly with the problem of the informed party lying to the uninformed parties however in many cases the informed party will stop short of lying but will seek to gain from private information by managing the disclosure of news this article examines the pricing of a firm when there is such manipulation of news i model this situation as a variant of the persuasion game of milgrom and roberts 1986 in which i can parameterize the notion of the degree of credence placed by the market on the disclosures of the informed party an empirical hypothesis thrown up by the theory is that for otherwise identical firms a low price earnings ratio will be associated with a greater degree of positive skewness of the disclosure strategy

stage financing and the role of convertible securities venture capital financing is characterized by extensive use of convertible securities and stage financing in a model where a venture capitalist provides staged financing for a project we illustrate an advantage of convertible debt or warrants over a mixture of debt and equity essentially when the venture capitalist retains the option to abandon the project the entrepreneur has an incentive to engage in window dressing and bias positively the short term performance of the project reducing the probability that it will be liquidated an appropriately designed convertible security prevents such behaviour because window dressing also increases the probability that the venture capitalist will exercise the conversion option becoming the owner of a substantial fraction of the project s equity

persuasion games with higher order uncertainty abstract shin j econom theory 64 1994 253 264 showed that a perfectly revealing equilibrium fails to exist in persuasion games when the decision maker is uncertain about the interested party s payoff relevant information by explicitly integrating higher order uncertainty into the information structure this note shows that a perfectly revealing equilibrium does exist when disclosures are not restrained to intervals of the payoff relevant state space

persuasion and receiver s news in a persuasion game with possibly missing evidence a receiver with access to news may make better decisions when she does not observe its content the value of ignorance deteriorates when communication is two sided

public protests and policy making technological advances and the development of social media have made petitions public protests and other form of spontaneous activism increasingly common tools for individuals to influence decision makers to study these phenomena in this article i present a theory of petitions and public protests that explores their limits as mechanisms to aggregate information the key assumption is that valuable information is dispersed among citizens through petitions and protests citizens can signal their private information to the policy maker who can then choose to use it or not i first show that if citizens individual signals are not sufficiently precise information aggregation is impossible no matter how large is the population of informed citizens even if the conflict with the policy maker is small i then characterize the conditions on conflict and the signal structure that guarantee information aggregation when these conditions are satisfied i show that full information aggregation is possible as the population grows to infinity when they are not satisfied i show that information aggregation may still be possible if social media are available

disclosure and choice an agent chooses among projects with random outcomes his payoff is increasing in the outcome and in an observer s expectation of the outcome with some probability the agent will be able to disclose some information about the true outcome to the observer we show that choice is inefficient in general we illustrate this point with a characterization of the inefficiencies that result when the agent can perfectly disclose the outcome with some probability and can disclose nothing otherwise as in dye 1985a in this case the agent favours riskier projects even with lower expected returns on the other hand if information can also be disclosed by a challenger who prefers lower beliefs of the observer the chosen project is excessively risky when the agent has better access to information excessively risk averse when the challenger has better access and efficient otherwise we also characterize the agent s worst case equilibrium payoff we give examples of alternative disclosure technologies illustrating other forms the inefficiencies can take for example in a two dimensional setting we demonstrate a hitting for the fences effect where the agent systematically focuses on the harder dimension at the expense of success on the easier

optimal disclosure decisions when there are penalties for nondisclosure we study a seller of an asset who is liable for damages if the seller fails to disclose to buyers an estimate of the asset s value he knew prior to the sale our results include as either the damages multiplier that determines the size of the damages the seller must pay buyers increases or as the probability the seller is caught withholding his estimate from buyers increases the seller discloses his estimate less often and as the precision of the seller s estimate increases he sells a larger fraction of the asset

rollover hedging and missing long term futures markets sequential rollover of annual futures positions provides farmers or others with a means of long term hedging consequently the absence of multiyear futures markets may not be a serious problem however year to year basis risk exists which can render rollovers ineffective in hedging evidence on soybean corn and cotton futures suggests that rollovers would be effective at locking in an initial price for a three to six year period but would be ineffective in routine hedging over a series of successive three to six year periods

conflicts and common interests in committees committees improve decisions by pooling members independent information but promote manipulation obfuscation and exaggeration of private information when members have conflicting preferences committee decision procedures transform continuous data into ordered ranks through voting this coarsens the transmission of information but controls strategic manipulations and allows some degree of information sharing each member becomes more cautious in casting the crucial vote than when he alone makes the decision based on own information increased quality of one member s information results in his casting the crucial vote more often committees make better decisions for members than does delegation

asymmetric information adverse selection and online disclosure the case of ebay motors since the pioneering work of akerlof 1970 economists have been aware of the adverse selection problem that information asymmetries can create in used goods markets the remarkable growth in online auctions of used goods where buyers generally purchase sight unseen therefore poses a puzzle i argue that given a means for credible information disclosure sellers will voluntarily disclose their private information to buyers through online media this limits information asymmetries and adverse selection to test this theory i examine the role of information in a large online used car market ebay motors i nd that sellers selectively disclose information that information asymmetries are reduced by these disclosures and that online media such as photos text and graphics provide a rich environment for information disclosure

the roles of reputation and transparency on the behavior of biased experts we analyze situations in which an expert is biased toward some decision but cares also about his reputation in the market for experts the information the expert reveals decreases as his bias moves toward stronger preference for the status quo we show that it is optimal to publicly disclose both the expert s contribution and his identity surprisingly revealing the intensity of the expert s bias doesn t always improve the information he reveals in equilibrium the presence of a second expert raises the first expert s incentives to report truthfully when reports are public but reduces them when they are secret in particular having an option to call another expert may be detrimental in terms of information production if reports are not public finally sequential consultation of experts reduces the information obtained when reports are public but raises it when they are secret

when does a firm disclose product information a firm chooses a price and the product information it discloses to a consumer whose tastes are privately known we provide a necessary and sufficient condition on the match function for full disclosure to be the unique equilibrium outcome whatever the costs and prior beliefs about product and consumer types it allows for products with different qualities as well as some horizontal match heterogeneity with independently distributed product and consumer types full disclosure is always an equilibrium and a necessary and sufficient equilibrium condition is that all firm types earn at least the full disclosure profit

a theory of environmental risk disclosure abstract the regulation of environmental risks increasingly emphasizes the awareness and empowerment of stakeholders the success of this approach however seems to depend crucially on the quality of environmental disclosures in this paper we investigate the amount and quality of the information that would be voluntarily delivered to some stakeholder by a potential polluter we find that information may be hazier when the stakeholder is confident or naive a priori the cost of analyzing the received reports increases little with their complexity or a polluter s net expected payoff from undertaking an industrial activity that would turn out to be unsafe is small a worried stakeholder and a low cost of producing more accurate figures on the other hand favor disclosure of high quality information by delivering information of very good quality safe firms can set themselves apart more easily from dangerous ones the higher the relative ex post payoff from their current industrial activity implications of this framework for the scope and design of public programs of environmental disclosure are briefly examined

information transmission when the sender s preferences are uncertain abstract in deciding on the magnitude of a certain action say investment a decision maker relies on the report of an informed and interested expert who can suppress favorable information the main departure from the related literature is that the decision maker is uncertain as to whether the expert is of a type that wants to minimize the magnitude of the action or to maximize it the unique equilibrium outcome is fully characterized by a threshold level of favorable information if the information is more favorable than that threshold level and if the expert is of the type that wants to maximize the magnitude of the action the information is fully revealed in all other cases the expert report less favorable information and the equilibrium inference is that in expectation the actual information is just as favorable as the threshold level

pay to play politics informational lobbying and contribution limits when money buys access abstract we develop a game theoretic model of informational lobbying between two interest groups and a politician in which the politician can require political contributions in exchange for access the analysis considers three claims 1 the rich have better access to politicians than less wealthy groups 2 this access advantage makes the rich better off and skews policy in their favor and 3 contribution limits can reduce the rich group advantage and result in less skewed policy we show that the rich do have better access with the politician always offering access to the rich groups and only sometimes offering access to the less wealthy group this does not however mean that the rich group is better off or that policy is biased in its favor the politician sets access fees to extract the greatest amount of rent from the political process when only the rich group has access its expected benefit from gaining access is fully offset by its payment to the politician in this case the less wealthy interest group who is not targeted by the politician is better off contribution limits decrease the politician s ability to extract rent which improves the payoffs of rich interests and decreases politician payoffs finally the paper presents a novel benefit of contribution limits they can encourage the formation of lobby groups or the search for evidence which results in more evidence disclosure and better policy

government target price intervention in economies with incomplete markets the target price deficiency payment program is among economists favorite examples of costly government intervention in competitive markets dubbed the brannan plan after president truman s secretary of agriculture this program pays producers any positive difference between a given target price and the prevailing market price for their output in a world of certainty and perfect competition such an intervention benefits producers hurts consumers as taxpayers and causes a net harberger triangle welfare loss these implications are not only standard fare in economics lecture halls they have become conventional wisdom in contemporary policy discussions for example the 1986 economic report of the president states income support programs by inhibiting the efficient operation of agricultural markets can impose extra costs on consumers and taxpayers that exceed the amount of income transferred to farmers when such losses occur the programs are doing more than redistributing income they are wasting valuable economic resources that could be used to make everyone better off the object of this paper is to show that these conclusions do not extend to a stochastic production economy with incomplete contingent claim markets in the latter setting the distributional and welfare implications of a brannan plan can be reversed producers can be made worse off consumers can be made better off and with nonstochastic compensation all agents can be made better off the conditions under which these outcomes occur include producer risk aversion and low price and income elasticities of demand all well known characteristics of staple food markets in which target price programs are actually employed e g markets for wheat corn and rice like many other equilibrium analyses of resource allocation

the burden of proof in a game of persuasion abstract an arbitrator faces the task of deciding the level of compensation to be received by a plaintiff from a defendant the arbitrator must rely on the verifiable submissions of the two interested parties because the information of the interested parties is not verifiable the unravelling argument has no force nevertheless a class of equilibria of this game gives rise to a particularly simple decision rule for the arbitrator which appeals to a probability distribution over the payoff relevant state space alone the uncertainty concerning the precision of the disputants information enter as parameters in this distribution this parametrization yields an answer to how the arbitrator s decision rule should be modified as the information of the disputants changes journal of economic literature classification numbers d78 d82 l51

the dynamic evolution of chinese firms cash holdings and r d external financing facilitation channels we study the dynamic evolution of chinese firms cash holdings and their relationship with r d investment using a sample of companies listed in the chinese a share market after introducing the exo

the unfavorable economics of measuring the returns to advertising twenty five large field experiments with major u s retailers and brokerages most reaching millions of customers and collectively representing 2 8 million in digital advertising expenditure reveal that measuring the returns to advertising is difficult the median confidence interval on return on investment is over 100 percentage points wide detailed sales data show that relative to the per capita cost of the advertising individual level sales are very volatile a coefficient of variation of 10 is common hence informative advertising experiments can easily require more than 10 million person weeks making experiments costly and potentially infeasible for many firms despite these unfavorable economics randomized control trials represent progress by injecting new unbiased information into the market the inference challenges revealed in the field experiments also show that selection bias due to the targeted nature of advertising is a crippling concern for widely employed observational methods jel codes l10 m37 c93

near sighted justice chapter 11 structures complex negotiations between creditors and debtors that are overseen by a bankruptcy court we identify conditions where the court should sometimes err in determining which firms should be liquidated such errors affect actions by both good and bad entrepreneurs we first characterize the optimal error rate without renegotiation when creditors and debtors can renegotiate to circumvent an error riven court for one class of actions a blind court that ignores all information is optimal for another class the court should place the burden of proof on the entrepreneur the robust feature is that the court should sometimes err chapter 11 structures complex negotiations between creditors and debtors that are overseen by a bankruptcy court it is often unclear whether it is socially optimal for a bankrupt firm to be reorganized as a continuing entity or whether it should be liquidated and the proceeds from liquidation distributed if creditors and debtors cannot reach a settlement then the bankruptcy court may impose one this paper asks the following questions is it always optimal for the court to make the right decision if liquidation is efficient should the court always mandate liquidation if the bankrupt firm could be a profitable entity should the court always allow it to restructure under the existing management and continue or is it optimal for the court to sometimes make mistakes how does the possibility of negotiated settlements affect the optimal design of the court at one level the answers to these questions are straightforward in a world where more accurate appraisals of a firm s quality are more costly the optimal allocation by a court of resources to evaluate the bankrupt firms will always reflect trade offs between the marginal costs of better appraisals and the marginal benefit of decision making based on more accurate appraisals in this paper we show that a court should also consider how the probability that it misidentifies the quality of a bankrupt firm affects the ex ante behavior of management and hence the probability that the firm becomes bankrupt

disclosures and asset returns public information in financial markets often arrives through the disclosures of interested parties who have a material interest in the reactions of the market to the new information when the strategic interaction between the sender and the receiver is formalized as a disclosure game with verifiable reports equilibrium prices can be given a simple characterization in terms of the concatenation of binomial pricing trees there are a number of empirical implications the theory predicts that the return variance following a poor disclosed outcome is higher than it would have been if the disclosed outcome were good also when investors are risk averse this leads to negative serial correlation of asset returns other points of contact with the empirical literature are discussed

when to drop a bombshell sender who is either good or bad wishes to look good at an exogenous deadline sender privately observes if and when she can release a public flow of information about her private type releasing information earlier exposes to greater scrutiny but signals credibility in equilibrium bad sender releases information later than good sender we find empirical support for the dynamic predictions of our model using data on the timing of u s presidential scandals and u s initial public offerings in the context of elections our results suggest that october surprises are driven by the strategic behaviour of bad sender

implementation with partial provability we extend implementation theory by allowing the social choice function to depend on more than just the preferences of the agents and allowing agents to support their statements with hard evidence we show that a simple condition on evidence is necessary for the implementation of a social choice function f when the preferences of the agents are state independent and sufficient for implementation for any preferences including state dependent with at least three agents if the social planner can perform small monetary transfers beyond those called for by f if transfers can be large f can be implemented in a game with perfect information when there are at least two players under a boundedness assumption for both results transfers only occur out of equilibrium the use of evidence enables implementation which is robust in the sense that the planner needs little information about agents preferences or beliefs and agents need little information about each others preferences our results are robust to evidence forgery at any strictly positive cost

optimal price policy and the futures markets abstract because of the short term nature of existing commodity futures contracts optimally hedged producers remain subject to intertemporal income uncertainty but price stabilization may be detrimental because it negates the benefits of intertemporal production flexibility multiperiod futures would be preferred to price stabilization although they would not provide perfect hedging opportunities thus leaving scope for government intervention the optimal price policy requires the support price to be positively correlated to the futures price that prevails when production decisions are made

comparative advertising disclosing horizontal match information improved consumer information about horizontal aspects of products of similar quality leads to better consumer matching but also to higher prices so consumer surplus can go up or down while profits rise with enough quality asymmetry though the higher quality and hence larger firm s price falls with more information so both effects benefit consumers this occurs when comparative advertising is used against a large firm by a small one comparative advertising as it imparts more information therefore helps consumers although it also improves the profitability of the small firm overall welfare goes down because of the large loss to the attacked firm

relying on the information of interested parties we investigate the conventional wisdom that competition among interested parties attempting to influence a decisionmaker by providing verifiable information elicits all relevant information we find that if the decisionmaker is strategically sophisticated and well informed about the relevant variables and about the preferences of the interested party or parties competition may be unnecessary to achieve this result if the decisionmaker is unsophisticated or not well informed competition is not generally sufficient if the interested parties interests are sufficiently opposed however or if the decisionmaker is seeking to advance the parties welfare then competition can reduce or even eliminate the decisionmaker s need for prior knowledge about the relevant variables and for strategic sophistication in other settings only the combination of competition among information providers and a sophisticated skepticism is sufficient to allow effective decisionmaking

secrecy two sided bias and the value of evidence abstract we provide necessary and sufficient conditions on players preferences for a verifiable message game to possess a separating equilibrium and or a pooling equilibrium as well as sufficient conditions for every equilibrium of such a game to be pooling we also characterize all nonseparating equilibria and use this property to show that less information might be conveyed in any equilibrium of a verifiable message game than in some equilibrium of the cheap talk game with the same parameters