A Theory of One-Size-Fits-All Recommendations

50 Pages Posted: 11 Oct 2018 Last revised: 24 Jul 2020

See all articles by Doron Levit

Doron Levit

University of Washington, Foster School of Business; European Corporate Governance Institute (ECGI)

Anton Tsoy

University of Toronto - Department of Economics

Date Written: July 23, 2020

Abstract

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 agents' benefits from the policy and his conflict of interest. We show that one-size-fits-all recommendations can be informative even when benefits are independent across agents. Such recommendations increase the expert's influence by concealing his conflict of interest. We apply the model to recommendations provided by the IMF, World Bank, proxy advisory firms, central banks, and the Basel Committee.

Keywords: One-Size-Fits-All, Recommendation, Cheap Talk, Advice, IMF, World Bank, International Financial Institutions, Basel Committee, Proxy Advisors, Central Bank

JEL Classification: D74, D83, G23, G32, G34

Suggested Citation

Levit, Doron and Tsoy, Anton, A Theory of One-Size-Fits-All Recommendations (July 23, 2020). Available at SSRN: https://ssrn.com/abstract=3251742 or http://dx.doi.org/10.2139/ssrn.3251742

Doron Levit

University of Washington, Foster School of Business ( email )

434 Paccar Hall, 4273 E Stevens Way NE
Seattle, WA 98195
United States

HOME PAGE: http://https://sites.google.com/view/doronlevit

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Anton Tsoy (Contact Author)

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S3G7
Canada

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