Essays on economics of information and incentives

The first chapter addresses a common presumption in organisational design that employees should not be given discretion about performance measures when offered performance pay. The concern is that they would make a self-serving choice, for example, one that allows them to boost their apparent performance by working on tasks which they find easy but bring little benefit to the company. I investigate this problem in a model in which the principal decides whether to delegate the choice of performance measure to an agent who is privately informed about the degree of substitutability of his effort on different tasks. I show that when the principal is using menus of contracts as a screening device, allowing the agent to choose his performance measure privately—and possibly in a self-serving way—can alleviate the problem of hidden information. Consequently, delegating the choice of performance measure can be complementary to provision of incentives and may increase the principal's payoff.
The second chapter analyses the incentives of authoritarian regimes to manipulate information by adding noise to the citizens' information, which is a tactic that is increasingly common in the real world. I consider a global games model in which a regime controls the amount of noise in the citizens’ private information and is overthrown if enough citizens attack it. The analysis sheds light on recent findings in political science which show that the Chinese regime uses censorship to prevent collective action rather than criticism of the state per se, and that it employs social media commentators to distract the citizens rather than to persuade them. I show that the better the citizens are informed about the regime, the more its incentives to add noise are driven by the criticism of the state rather than by the need to minimise the size of collective attacks. Furthermore, the incentives to add noise may become stronger if citizens’ better coordination comes at the cost of impeded information aggregation.
The third chapter, which is co-authored with Bartosz Redlicki (University of Cambridge), studies a game between a biased sender (an interest group) and a decision maker (a policy maker) where the former can falsify scientific evidence at a cost. The sender observes scientific evidence and knows that it will also be observed by the decision maker unless he falsifies it. If he falsifies, then there is a chance that the decision maker observes the falsified evidence rather than the true scientific evidence. First, we investigate the decision maker’s incentives to privately acquire independent evidence, which not only provides additional information to her but can also strengthen or weaken the sender’s falsification effort. We characterise the circumstances under which the benefit from the additional information is boosted, unaffected, dampened, and fully offset by the adjustment in the sender’s falsification strategy. Second, we analyse the decision maker’s incentives to acquire information from the sender. We show that she may be better off by committing to pay less than full attention to the sender as this can discourage falsification.

Keywords: Information economics
Microeconomic theory
Political economics
Advisor: Meyer, M