Intuition in the Shadow of the Court

19 Pages Posted: 21 Feb 2020

See all articles by Aditya Kuvalekar

Aditya Kuvalekar

Universidad Carlos III de Madrid

Joao Ramos

Marshall School of Business - University of Southern California

Johannes Schneider

Universidad Carlos III de Madrid

Date Written: January 24, 2020

Abstract

We study the welfare effects of changing information quality, given that information has different natures. An agent decides whether to approve a project based on his information, a part of which is verifiable in court. If the project fails, the court examines the verifiable information and decides the punishment. We characterize the optimal penal code, which balances the deterrence of ill-intentioned agents from choosing inefficient actions with the chilling effect it may have on honest agents. We show that welfare consequences of changing information precision depend on its nature: improving verifiable information can reduce welfare; improving unverifiable information increases welfare.

Suggested Citation

Kuvalekar, Aditya and Ramos, Joao and Schneider, Johannes, Intuition in the Shadow of the Court (January 24, 2020). Available at SSRN: https://ssrn.com/abstract=3525007 or http://dx.doi.org/10.2139/ssrn.3525007

Aditya Kuvalekar

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Joao Ramos

Marshall School of Business - University of Southern California ( email )

701 Exposition Boulevard, STE 205
Los Angeles, CA 90089-1422
United States

HOME PAGE: http://www.joaoaramos.com/

Johannes Schneider (Contact Author)

Universidad Carlos III de Madrid ( email )

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