Social Value of Public Information in Bargaining

Abstract

We introduce ex ante public news about a player in reputational bargaining.
We show that the effect of higher news accuracy on expected welfare is
positive or negative depending on two factors: (1) whether the news is about
the strong or weak bargainer and (2) whether the news turns the bargaining
table. When the news does not turn the table, more accurate news about
the weak bargainer has no effect, whereas that about the strong bargainer
reduces expected welfare. When the news turns the table, higher accuracy
improves expected welfare. We also design optimally accurate news that
maximizes expected welfare.

Keywords: Bargaining, Reputation, Value of Information

JEL Classification: C78, D82