Persuading the Principal to Wait
35 Pages Posted: 20 Apr 2016 Last revised: 27 Aug 2018
Date Written: August 23, 2018
A principal decides when to exercise a real option. A biased agent influences this decision by strategically disclosing relevant information. To persuade the principal to wait it is optimal to commit to delayed disclosure of all information. Without long-term commitment, this promise is credible only if the agent’s bias towards delayed exercise is small; otherwise, the agent pipets information, probabilistically delaying the principal’s action. When the agent is biased towards early exercise, his lack of commitment to remain quiet leads to immediate disclosure, hurting the agent. Our model applies to pharmaceutical companies conducting post-market clinical trials to influence the FDA or equipment manufacturers testing their products to attract customers.
Keywords: strategic communication, bayesian persuasion, dynamic games, real options
JEL Classification: C73, D83
Suggested Citation: Suggested Citation