Pricing Unverifiable Information

25 Pages Posted: 30 Apr 2020 Last revised: 22 Jul 2020

See all articles by Salil Sharma

Salil Sharma

Stockholm School of Economics, Department of Economics, Students

Elias Tsakas

Maastricht University - Department of Economics

Mark Voorneveld

Stockholm School of Economics - Department of Economics

Date Written: July 22, 2020

Abstract

We study markets for information in the form of Bayesian signals. The main feature of such markets is that information is costly for the seller to acquire and cannot be verified by the buyer. We provide a full characterization of the set of all compensation schemes (viz., menus) which guarantee that the demanded signal will be chosen by the seller. We then show that for all such menus, the seller's surplus will always be strictly positive. This is true even in ideal settings for the buyer (e.g., when the buyer is perfectly informed and has all the strategic power), implying that information is always overpriced irrespective of the market characteristics. This prediction is strikingly distinct from the corresponding one in markets for commodities, and it is attributed to the fact that information is unverifiable.

Keywords: Markets for information, verifiability, costly information acquisition, incentives, surplus.

JEL Classification: D46, D47, D81, D82, D83, D84

Suggested Citation

Sharma, Salil and Tsakas, Elias and Voorneveld, Mark, Pricing Unverifiable Information (July 22, 2020). Available at SSRN: https://ssrn.com/abstract=3569640 or http://dx.doi.org/10.2139/ssrn.3569640

Salil Sharma

Stockholm School of Economics, Department of Economics, Students ( email )

P.O. Box 6501
Sveavagen 65
Stockholm
Sweden

Elias Tsakas (Contact Author)

Maastricht University - Department of Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Mark Voorneveld

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden

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