Xiao Lin (Penn State University) (Webinar)
8 February 2022 @ 16:00 - 17:15
- Past event
Abstract. We propose a new notion of credibility for information design. A disclosure policy is credible if the sender cannot profit from tampering with her messages while keeping the message distribution unchanged. We show that the credibility of a disclosure policy is equivalent to a cyclical monotonicity condition on its induced distribution over states and actions. We characterize when credibility considerations completely shut down informative communication, as well as settings where the sender is guaranteed to benefit from credible persuasion. We apply our results to the market for lemons and bank runs. In the market for lemons, we show that no useful information can be credibly disclosed by the seller, even though a seller who can commit to her disclosure policy would perfectly reveal her private information to maximize profit. In the context of bank runs, whether the regulator can credibly perform a stress test to forestall a bank run depends on the welfare cost of a liquidity crisis.