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Optimal Reporting When Additional Information Might Arrive

62 Pages Posted: 30 Sep 2015 Last revised: 24 Feb 2017

Henry L. Friedman

University of California, Los Angeles (UCLA) - Accounting Area

John S. Hughes

University of California at Los Angeles

Beatrice Michaeli

University of California, Los Angeles (UCLA)

Date Written: February 21, 2017

Abstract

We study a persuasion model in which a sender not only chooses a reporting system to influence a receiver’s beliefs, but also may subsequently receive private information and exercise discretion over its disclosure. We identify conditions under which (i) higher-quality private information may induce more or less informative reporting systems, (ii) an option to withhold private information is or is not valuable to the sender, and (iii) the sender and the receiver have aligned or misaligned preferences regarding the receipt of private information or the discretion over its disclosure. Our results are robust to limited ex post manipulation of report realizations. We consider applications to various settings including initial public offerings of securities, issuer-pay bond ratings, FDA drug approval processes, and professional rules of conduct for prosecutors in criminal actions.

Keywords: Bayesian persuasion, disclosure of private information, verifiable messages, commitment

JEL Classification: D82, M40, M41

Suggested Citation

Friedman, Henry L. and Hughes, John S. and Michaeli, Beatrice, Optimal Reporting When Additional Information Might Arrive (February 21, 2017). Available at SSRN: https://ssrn.com/abstract=2666780 or http://dx.doi.org/10.2139/ssrn.2666780

Henry L. Friedman (Contact Author)

University of California, Los Angeles (UCLA) - Accounting Area ( email )

D416 Anderson Complex
Los Angeles, CA 90095-1481
United States

John S. Hughes

University of California at Los Angeles ( email )

D410 Anderson Complex
Los Angeles, CA 90095-1481
United States
310-794-9553 (Phone)
310-267-2193 (Fax)

Beatrice Michaeli

University of California, Los Angeles (UCLA) ( email )

D415 Anderson Complex
Los Angeles, CA 90095
United States

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