Does Costly Persuasion Signal Quality?

32 Pages Posted: 16 Nov 2020

See all articles by Elias Carroni

Elias Carroni

University of Bologna - Department of Economics

Luca Ferrari

affiliation not provided to SSRN

Giuseppe Pignataro

University of Bologna - Department of Economics

Date Written: September 9, 2020

Abstract

This article investigates how a privately-informed seller could signal her type by gathering information about the buyer's match value. We study two alternative ways to obtain information. In the first one, labeled information acquisition, the seller can acquire exogenous signals by facing a fixed acquisition cost. In the second one, on top of the fixed cost, the seller faces an additional designing cost based on mutual information to endogenously reduce uncertainty on the match value (information design). At first glance, bearing such cost may seem not convenient for the seller. However, we show that when the designing cost is relatively high, the parameter region in which separation can occur is larger under information design. When this cost is low, the separation cannot emerge under information design. The non-monotone relationship between the designing cost and separating outcomes shows that a seller's ability to provide match information is not necessarily associated with more precise quality information.

Keywords: persuasion, signaling, match value, information design, unknown quality

JEL Classification: D82, D83, L11

Suggested Citation

Carroni, Elias and Ferrari, Luca and Pignataro, Giuseppe, Does Costly Persuasion Signal Quality? (September 9, 2020). Available at SSRN: https://ssrn.com/abstract=3689695 or http://dx.doi.org/10.2139/ssrn.3689695

Elias Carroni

University of Bologna - Department of Economics ( email )

Bologna
Italy

HOME PAGE: http://https://sites.google.com/site/eliascarroninuoro/

Luca Ferrari

affiliation not provided to SSRN

Giuseppe Pignataro (Contact Author)

University of Bologna - Department of Economics ( email )

Piazza Scaravilli, 2
https://www.giuseppepignataro.info
Bologna, Bologna 40122
Italy
3331127342 (Phone)
40126 (Fax)

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