Daniel Rappoport

Signaling Good Faith by Taking Stands
Date Posted:Mon, 24 Jul 2023 15:06:06 -0500
A decision maker (DM), who will take a binary decision, cares about his reputation for being ?good,? i.e., wanting to accord his action choice with public evidence, as opposed to being ?bad,? i.e., having a fixed partisan agenda regardless of the evidence. While the decision is taken after evidence is realized, the DM has the option to take a ?stand? beforehand, i.e., to communicate his intentions via a cheap-talk message. A wide range of equilibria exist and are characterized by how much the good DM reveals about his standards at this initial communication stage. The most informative of these is ex-ante signaling, which sees the DM effectively commit to a contingent plan as a function of the realized evidence. Our main theorem shows that, across all equilibria, ex-ante signaling minimizes the probability that the DM follows his partisan agenda. We also consider how the design of the investigation? the distribution of evidence?affects outcomes in the presence of informative stands. The investigation mitigates the DM?s partisan behavior more when the distribution of evidence is ?unpredictable,? as this hinders the DM in targeting his announced contingent plan.

REVISION: Rank Uncertainty in Organizations
Date Posted:Mon, 31 Aug 2020 04:42:03 -0500
A principal incentivizes a team of agents to work by privately offering them bonuses contingent on team success. We study the principal’s optimal incentive scheme that implements work as a unique equilibrium. This scheme leverages rank uncertainty to address strategic uncertainty. Each agent is informed only of a ranking distribution and his own bonus, the latter making work dominant provided that higher-rank agents work. If agents are symmetric, their bonuses are identical. Thus, discrimination is strictly suboptimal, in sharp contrast with the case of public contracts (Winter, 2004). We characterize how agents’ ranking and compensation vary with asymmetric effort costs.

REVISION: Rank Uncertainty in Organizations
Date Posted:Mon, 13 Apr 2020 10:26:02 -0500
A principal incentivizes a team of agents to work by privately offering them bonuses contingent on team success. We study the principal’s optimal incentive scheme that implements work as a unique equilibrium. This scheme leverages rank uncertainty to address strategic uncertainty. Each agent is informed only of a ranking distribution and his own bonus, the latter making work dominant provided that higher-rank agents work. If agents are symmetric, their bonuses are identical. Thus, discrimination is strictly suboptimal, in sharp contrast with the case of public contracts (Winter, 2004). We characterize how agents’ ranking and compensation vary with asymmetric effort costs.

Rank Uncertainty in Organizations
Date Posted:Wed, 08 Apr 2020 11:37:23 -0500
A principal incentivizes a team of agents to work by privately offering them bonuses contingent on team success. We study the principal?s optimal incentive scheme that implements work as a unique equilibrium. This scheme leverages rank uncertainty to address strategic uncertainty. Each agent is informed only of a ranking distribution and his own bonus, the latter making work dominant provided that higher-rank agents work. If agents are symmetric, their bonuses are identical. Thus, discrimination is strictly suboptimal, in sharp contrast with the case of public contracts (Winter, 2004). We characterize how agents? ranking and compensation vary with asymmetric effort costs.

REVISION: Rank Uncertainty in Organizations
Date Posted:Wed, 08 Apr 2020 02:37:25 -0500
A principal incentivizes a team of agents to work by privately offering them bonuses contingent on team success. We study the principal’s optimal incentive scheme that implements work as a unique equilibrium. This scheme leverages rank uncertainty to address strategic uncertainty. Each agent is informed only of a ranking distribution and his own bonus, the latter making work dominant provided that higher-rank agents work. If agents are symmetric, their bonuses are identical. Thus, discrimination is strictly suboptimal, in sharp contrast with the case of public contracts (Winter, 2004). We characterize how agents’ ranking and compensation vary with asymmetric effort costs.

REVISION: Evidence and Skepticism in Verifiable Disclosure Games
Date Posted:Tue, 03 Mar 2020 05:13:43 -0600
A key feature of communication with evidence is skepticism: to the extent possible, a receiver will attribute any incomplete disclosure to the sender concealing unfavorable evidence. The degree of skepticism depends on how much evidence the sender is expected to possess. I characterize when a change in the prior distribution of evidence induces more skepticism, i.e. induces any receiver to take an equilibrium action that is less favorable to the sender following every message. I formalize an increase in the sender’s (ex-ante) amount of evidence and show that this is equivalent to inducing more skepticism. As an input to this result, I fully characterize receiver optimal equilibrium outcomes in general verifiable disclosure games. I apply these results to a dynamic disclosure problem in which the sender obtains and discloses evidence over time. I identify the necessary and sufficient condition on the evidence structure such that the receiver cannot benefit from early inspections.

REVISION: Evidence and Skepticism in Verifiable Disclosure Games
Date Posted:Thu, 06 Feb 2020 10:22:49 -0600
A key feature of communication with evidence is skepticism: to the extent possible, a receiver will attribute any incomplete disclosure to the sender concealing unfavorable evidence. The degree of skepticism depends on how much evidence the sender is expected to possess. I characterize when a change in the prior distribution of evidence induces more skepticism, i.e. induces any receiver to take an equilibrium action that is less favorable to the sender following every message. I formalize an increase in the sender’s (ex-ante) amount of evidence and show that this is equivalent to inducing more skepticism. As an input to this result, I fully characterize receiver optimal equilibrium outcomes in general verifiable disclosure games. I apply these results to a dynamic disclosure problem in which the sender obtains and discloses evidence over time. I identify the necessary and sufficient condition on the evidence structure such that the receiver cannot benefit from early inspections.

REVISION: Incentivizing Information Design
Date Posted:Sun, 26 Nov 2017 04:43:44 -0600
A principal hires an agent to acquire costly information that will influence the decision of a third party. While the realized piece of information is observable and contractible, the experimental process is not. Assuming a general family of information cost functions (inclusive of Shannon’s mutual information), we show that the first best is achievable when the agent has limited liability or when he is risk averse, in contrast to standard moral hazard models. However, when the agent is risk averse and has limited liability, efficiency losses arise generically. Specifically, we show that the principal obtains his first best outcome if and only if she intends to implement a ”symmetric” experiment, i.e. one in which the cost of generating each piece of evidence is the same. On the other hand, ”asymmetric” experiments that are relatively uninformative with high probability but occasionally produce conclusive evidence will bear large agency costs.

REVISION: Evidence and Skepticism in Verifiable Disclosure Games
Date Posted:Sun, 26 Nov 2017 04:41:58 -0600
A key feature of communication with evidence is skepticism: to the extent possible, a receiver will attribute any incomplete disclosure to the sender concealing unfavorable evidence. The degree of skepticism depends on how much evidence the sender is expected to possess. I characterize when a change in the prior distribution of evidence induces more skepticism, i.e. induces any receiver to take an equilibrium action that is less favorable to the sender following every message. I formalize an increase in the sender’s (ex-ante) amount of evidence and show that this is equivalent to inducing more skepticism. My analysis provides a method to solve general verifiable disclosure games, including an expression for equilibrium actions. I apply these results to a dynamic disclosure problem in which the sender obtains and discloses evidence over time. I identify the necessary and sufficient condition on the evidence structure such that the receiver can benefit from early inspections.

REVISION: Evidence and Skepticism in Verifiable Disclosure Games
Date Posted:Mon, 13 Nov 2017 05:39:03 -0600
A key feature of communication with evidence is skepticism: to the extent possible, a receiver will attribute any incomplete disclosure to the sender concealing unfavorable evidence. The degree of skepticism depends on how much evidence the sender is expected to possess. I characterize when a change in the prior distribution of evidence induces more skepticism, i.e. induces any receiver to take an equilibrium action that is less favorable to the sender following every message. I formalize an increase in the sender’s (ex-ante) amount of evidence and show that this is equivalent to inducing more skepticism. My analysis provides a method to solve general verifiable disclosure games, including an expression for equilibrium actions. I apply these results to a dynamic disclosure problem in which the sender obtains and discloses evidence over time. I identify the necessary and sufficient condition on the evidence structure such that the receiver can benefit from early inspections.

REVISION: Evidence and Skepticism in Verifiable Disclosure Games
Date Posted:Wed, 26 Jul 2017 11:53:58 -0500
A shared feature of communication games with verifiable evidence is that the receiver is skeptical following any non-disclosure: he will believe that the message comes from an informed sender who is withholding unfavorable evidence. It then follows that when the receiver is more skeptical he will choose a less preferable action for the sender. This paper seeks to characterize when a change in the distribution of evidence induces any receiver to be more skeptical, i.e. take an action that is less favorable to the sender following any message. We introduce the ”more evidence” relation on prior distributions over types: a distribution has more evidence than another if sender types with larger available message sets are more probable in a monotone likelihood ratio sense. Our main result shows that the sender having more evidence is equivalent to an increase in receiver skepticism. We first show that this equivalence unifies many seemingly different comparative statics results from the ...

Incentivizing Information Design
Date Posted:Fri, 21 Jul 2017 18:41:08 -0500
A principal hires an agent to acquire costly information that will influence the decision of a third party. While the realized piece of information is observable and contractible, the experimental process is not. Assuming a general family of information cost functions (inclusive of Shannon?s mutual information), we show that the first best is achievable when the agent has limited liability or when he is risk averse, in contrast to standard moral hazard models. However, when the agent is risk averse and has limited liability, efficiency losses arise generically. Specifically, we show that the principal obtains his first best outcome if and only if she intends to implement a ?symmetric? experiment, i.e. one in which the cost of generating each piece of evidence is the same. On the other hand, ?asymmetric? experiments that are relatively uninformative with high probability but occasionally produce conclusive evidence will bear large agency costs.

REVISION: Incentivizing Information Design
Date Posted:Fri, 21 Jul 2017 09:41:10 -0500
We study a principal who hires an agent to acquire costly information that will influence the decision of a third party. While the realized piece of information is observable and contractible, the experimental process is not. Assuming a general family of information cost functions (inclusive of Shannon’s mutual information), we show that the first best is achievable when the agent has limited liability or when he is risk averse, in contrast to standard moral hazard models. However, when the agent is both risk averse and has limited liability, efficiency losses arise generically. Specifically, we show that the principal obtains his first best outcome if and only if he intends to implement a ”symmetric” experiment, i.e. one in which the cost of generating each piece of evidence is the same. On the other hand, ”asymmetric” experiments that are uninformative with high probability but occasionally produce conclusive evidence will bear large agency costs.

Evidence and Skepticism in Verifiable Disclosure Games
Date Posted:Mon, 05 Jun 2017 19:25:33 -0500
A key feature of communication with evidence is skepticism: to the extent possible, a receiver will attribute any incomplete disclosure to the sender concealing unfavorable evidence. The degree of skepticism depends on how much evidence the sender is expected to possess. I characterize when a change in the prior distribution of evidence induces more skepticism, i.e. induces any receiver to take an equilibrium action that is less favorable to the sender following every message. I formalize an increase in the sender?s (ex-ante) amount of evidence and show that this is equivalent to inducing more skepticism. As an input to this result, I fully characterize receiver optimal equilibrium outcomes in general verifiable disclosure games. I apply these results to a dynamic disclosure problem in which the sender obtains and discloses evidence over time. I identify the necessary and sufficient condition on the evidence structure such that the receiver cannot benefit from early inspections.

REVISION: Evidence and Skepticism in Verifiable Disclosure Games
Date Posted:Mon, 05 Jun 2017 10:25:35 -0500
A shared feature of communication games with verifiable evidence is that the receiver will be skeptical following any non-disclosure: he will tend to believe that the message comes from an informed sender who is withholding unfavorable evidence. It then follows that when the receiver is more skeptical he will choose a less preferable action for the sender. This paper seeks to characterize when a change in the distribution of evidence induces any receiver to be more skeptical. We introduce the ”more evidence” relation between type distributions: a distribution has more evidence than another if types with larger available sets are more probable in a monotone likelihood ratio sense. We show that when the sender has more evidence, the equilibrium action following any message is less favorable for the sender, i.e. the receiver becomes more skeptical following any message. We also show that the more evidence relation is necessary for this kind of increased skepticism in the receiver: if ...