Essays on applications of information design in economics
Creators: name: Kang, Sungmin
Publisher: name: No Publisher Supplied
Year: 2024

description: Undoubtedly, information issues play a crucial role in economic models. Understanding the intricacies of information interactions is essential for explaining market behavior and designing effective policies. That is why, information design is drawing much attention in applied models. It examines the strategic structuring and dissemination of information to shape and enrich decision-making processes. In fact, the ideal information interaction is neither simply revealing everything nor completely hiding it. As people communicate in highly complex ways, and as their methods require careful design, it demands extensive and detailed study. This dissertation studies applications of information design to several strategic models. Primarily, it explores the information structure or central signaling system to enhance social outcomes. Manipulating information rather than disclosing the truth is a key strategy for achieving favorable outcomes. It is necessary to induce new beliefs in agents or stir up their mutual beliefs. The research found that when agents have discrepant interests, the system utilizes both revealing and pooling signals with elaborately designed probabilities. Furthermore, it demonstrates a model where fostering discrepant beliefs, particularly higher-order beliefs, is necessary to achieve the goal. These points provide us with interesting insights into the type of socially efficient information system. The dissertation consists of three chapters. Chapter 1 explores a conflict model featuring strategic complements and its resolution. Specifically, it considers a repeated Hawk-Dove game in which player 1's type, either "hawkish" (war-seeking) or "dovish" (peace-seeking), is unobservable to player 2. Although their direct communication yields no meaningful messages for peace, a mediator can facilitate a peaceful outcome. By mixing signals regarding player 1's type, the mediator induces an optimistic belief in player 2. Private signals prevent the common belief of the hawkish type, encouraging dynamic cooperation. Notably, even if player 2 privately realizes the hawkish type, she pretends not to know it. The findings imply that constraining the formation of common knowledge can delay conflict and foster a peaceful resolution. Chapter 2 is based on a similar conflict model, but it extends to a problem of organizational structure. It discusses a two-player game where they are uncertain about the payoff structure, whether cooperative or conflictual. A third party planner allocates decision-making and information powers to the players. Then, the player with information power acts as a signal sender, while the one with decision power becomes a signal receiver and decides the outcome. During their communication, the signal sender plans partially informative signaling to conceal the conflictual situation. As a result, the players achieve coordinated outcomes and maximize the sum of the ex-ante expected payoffs. The model suggests that separating the two powers into distinct roles -- one as the sender and the other as the decision-maker -- is an efficient structure. Chapter 3 studies a model of strategic substitutes and continuous payoff. Specifically, it examines an information system designed for the Cournot duopoly under demand uncertainty. An information designer releases different signals to each firm, one indicating the high demand truthfully and the other pooling both high and low demands. When both potential demand levels are not sufficiently high, the informed firm effectively produces the monopoly output for the high demand and produces nothing otherwise. If the two levels are considerably high, firms can, instead, yield total outputs between Nash equilibria and Bayesian Nash equilibrium. This equilibrium signaling also extends to the framework of information discrimination.