Market for Manipulable Information

96 Pages Posted: 18 Feb 2024

See all articles by Hui Chen

Hui Chen

Massachusetts Institute of Technology

Jian Sun

Lee Kong Chian School of Business, Singapore Management University

Date Written: January 31, 2024


We study how investors, firms, and information sellers interact in a market with manipulable information. To better predict the firm characteristics they care about, investors can buy a score from a monopolistic information seller, which aggregates signals that are subject to firm manipulation. The average degree of signal manipulability has no effect on the equilibrium, while the uncertainty about manipulability becomes a new source of noise. Its contribution depends on firms' incentive to manipulate the signals, which in turn depends on the equilibrium price sensitivity to the score. The optimal design of the score weighs signal precision against the endogenous uncertainty due to manipulation. The introduction of mandate investors, who care about the scores on the characteristics and not the characteristics themselves, generates an incentive for information sellers to inflate the scores. When applied to green investing, our model implies that the effectiveness of impact investing on the cost of capital could actually decline as the fraction of green investors or the strength of the mandate keeps rising, because they generate stronger incentives for manipulation.

Keywords: information market, manipulation, score design, ratings, impact investing

JEL Classification: G14, G23, G24, D83

Suggested Citation

Chen, Hui and Sun, Jian, Market for Manipulable Information (January 31, 2024). Available at SSRN: or

Hui Chen (Contact Author)

Massachusetts Institute of Technology ( email )

50 Memorial Drive
Cambridge, MA 02142
United States
+1 (617) 324-3896 (Phone)

Jian Sun

Lee Kong Chian School of Business, Singapore Management University ( email )

Li Ka Shing Library
70 Stamford Road
Singapore 178901, 178899

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