The Wrong Kind of Information

38 Pages Posted: 21 Feb 2020 Last revised: 3 Aug 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: July 30, 2020

Abstract

An agent decides whether to approve a project based on his information, some of which is verified by the principal. An honest agent wants to implement projects that are likely to succeed; a dishonest agent wants to implement any project. If the project fails, the principal examines the verifiable information and decides the punishment. The principal seeks to deter ill-intentioned agents from implementing projects likely to fail while incentivizing the use of the unverifiable information. We show how information of different kinds affects welfare. Improving the verifiable information can reduce welfare, while improving the unverifiable information always increases welfare.

Suggested Citation

Kuvalekar, Aditya and Ramos, Joao and Schneider, Johannes, The Wrong Kind of Information (July 30, 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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