A Theory of One-Size-Fits-All Recommendations

49 Pages Posted: 11 Oct 2018 Last revised: 16 Mar 2019

See all articles by Doron Levit

Doron Levit

University of Pennsylvania - Finance Department; European Corporate Governance Institute (ECGI)

Anton Tsoy

Einaudi Institute for Economics and Finance

Date Written: March 13, 2019

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 (March 13, 2019). Available at SSRN: https://ssrn.com/abstract=3251742 or http://dx.doi.org/10.2139/ssrn.3251742

Doron Levit

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Anton Tsoy (Contact Author)

Einaudi Institute for Economics and Finance ( email )

Via Sallustiana 62
Rome, 00187
Italy

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