Extremists into Truth-Tellers: Information Aggregation Under Asymmetric Preferences

30 Pages Posted: 18 Apr 2016

See all articles by Jean-Philippe Bonardi

Jean-Philippe Bonardi

University of Lausanne

Olivier Cadot

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne); Centre for Economic Policy Research (CEPR); World Bank

Lionel Cottier

University of Lausanne

Date Written: February 2016

Abstract

We set up a model of costly information production between two lobbies, a firm and a consumer group, competing for influence over an imperfectly informed but benevolent government.

The government is endowed with a parametric amount of information and chooses the best policy from a finite, countable feasible set given the information available (its own and that forwarded by lobbies).

Lobbies have asymmetric preferences, the firm being a high-stakes player with relatively extreme preferences and the consumer group a low-stakes player with preferences more aligned with the government's.

We show that lobbies spend too much on information production in any Nash equilibrium despite a timing-game structure in which the lobbies are free to choose the order of play.

We also show that in some parameter configurations, the firm insures against a consumer win by forwarding unbiased information to the government, in spite of its own extreme preferences and high stakes.

The resulting informational rent enables the government to adopt moderate policies aligned with its own (i.e. societal) preferences, suggesting a new way in which lobby competition can produce good policies even when the government is imperfectly informed.

Keywords: Game theory, imperfect information, lobbying model, timing game

JEL Classification: D72, F13, H4, K0, P1

Suggested Citation

Bonardi, Jean-Philippe and Cadot, Olivier and Cottier, Lionel, Extremists into Truth-Tellers: Information Aggregation Under Asymmetric Preferences (February 2016). CEPR Discussion Paper No. DP11118, Available at SSRN: https://ssrn.com/abstract=2766409

Jean-Philippe Bonardi (Contact Author)

University of Lausanne ( email )

Quartier Chambronne
Lausanne, Vaud CH-1015
Switzerland

Olivier Cadot

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne) ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland
+41 21 692 3463 (Phone)
+41 21 692 3495 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

World Bank ( email )

1818 H Street NW
Washington, DC 20433
United States

Lionel Cottier

University of Lausanne ( email )

Quartier Chambronne
Lausanne, Vaud CH-1015
Switzerland

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