48 Pages Posted: 11 Oct 2018 Last revised: 10 Jan 2019
Date Written: January 8, 2019
“One-size-fits-all” recommendations are common in many contexts, including those with a widespread heterogeneity. We propose a model that rationalizes this phenomenon. An expert recommends publicly to two agents whether to adopt a policy. The expert is privately informed about the benefit of the policy to each agent and the bias in his judgment. We show that a blanket recommendation arises in equilibrium even though the benefits are independent across agents. A blanket recommendation allows the expert to conceal his bias, thereby increasing his influence. We discuss the application of the model to economic reforms proposed by the IMF and the World Bank, voting guidelines by proxy advisory firms, central bank communications, and policy recommendations of the Basel Committee on Banking Supervision.
Keywords: Recommendation, Cheap Talk, Advice, IMF, World Bank, Basel Committee, Proxy Advisors, Central Bank
JEL Classification: D74, D83, G23, G32, G34
Suggested Citation: Suggested Citation