Working Paper: CEPR ID: DP17955
Authors: Rahul Deb; Mallesh Pai; Maher Said
Abstract: We provide an organizational economics foundation for commitment to information structures in persuasion. An uninformed principal faces a joint screening-and-persuasion problem: she wants to influence a receiver’s beliefs about a payoff-relevant state using information elicited from a privately informed agent. The principal cannot act as an intermediary that commits to an optimal garbling of the agent’s private communications; instead, the agent’s messages are publicly observed by the receiver. We show that the principal can still (indirectly) implement the optimal unconstrained intermediation scheme. Commitment to an employment contract with the agent alone suffices for optimal persuasion of the receiver. We apply our result to the context of a brokerage contracting with a sell-side analyst, where private communication is constrained by conflict-of-interest regulations. We show that a public communication scheme—which closely corresponds to the investment ratings schemes observed in practice—can sidestep these regulations.
Keywords: mechanism design; persuasion; communication; commitment
JEL Codes: D82; D83; D86; G14; G18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Principal's commitment to an employment contract (M55) | Optimal persuasion of the receiver (H21) |
| Agent's public messages (L85) | Receiver's beliefs about the state (D83) |
| Principal's commitment to an employment contract (M55) | Receiver's beliefs about the state (D83) |