A Theory of One-Size-Fits-All Recommendations

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