Communication via Third Parties
32 Pages Posted: 3 Mar 2020 Last revised: 5 Mar 2021
Date Written: March 5, 2021
A principal designs an information structure and chooses transfers to an agent that are contingent on the action of a receiver. The principal faces a trade-off between, on the one hand, designing an information structure maximizing non-monetary payoffs, and on the other hand, minimizing the information rent that must be conceded to the agent in order to implement the information structure which the principal designed. We examine how this trade-off shapes communication. Our model can be applied to study the relationship between, e.g.: political organizations and the public relations companies that campaign on their behalf, firms and the companies marketing their products, consultancies and the analysts they employ.
Keywords: Information Design, Moral Hazard, Agency Cost, Information Acquisition
JEL Classification: C72, D82
Suggested Citation: Suggested Citation