Does Costly Persuasion Signal Quality?

20 Pages Posted: 16 Nov 2020 Last revised: 12 Jul 2021

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

We present a buyer-seller setup in which seller type is private information and buyer utility is state contingent. States of nature are commonly unknown and the seller can design information through a Bayesian experiment by facing a cost based on Shannon’s entropy. We show that the seller of high type has an incentive to design more precise information and is willing to bear a higher cost. Hence, when the cost is sufficiently high, separation can occur without price distortions. Differently, when the cost is excessively low, price signaling is also needed to separate.

Keywords: persuasion, signaling, information design, asymmetric information

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://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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