M&O/ACLE Tinbergen Institute Seminar
Wald Deconstructed: The Organization of Persuasion / Bundling and Quality Assurance
Double seminar with Seminar with Marco Ottaviani (Bocconi University) and Kathryn Spier (Harvard Law School). Venue: Tinbergen Institute.
Marco Ottaviani (Bocconi University)
Wald Deconstructed: The Organization of Persuasion
An agent sequentially collects information at a cost to influence a decision maker’s choice between rejection and approval. We model this situation through an organizational deconstruction of Wald's classic model of sequential information acquisition. The payoff and control rights of the Wald statistician are split between the agent and the decision maker. The decision maker prefers approval in the good state and rejection in the bad state and thus benefits from information diffusion. The agent controls the information and pays for it, but benefits from approval regardless of the state and thus has no direct value for information. The agent's desire to persuade the decision maker induces an indirect demand for information. We characterize the outcome achieved by different organizational structures from a positive and normative perspective, depending on the commitment power of the agent and the decision marker. We also examine situations where the agent can misrepresent information at a cost and we show that it is socially optimal to tolerate a positive amount of misrepresentation. Our results apply to the interaction between an upstream research division and a downstream sales division of a firm, pharmaceutical companies and the drug safety regulator, and merging firms and the competition authority.
*Joint with Emeric Henry (Sciences Po)
Bundling and Quality Assurance
Katryn Spier (Harvard Law School) and James D. Dana (Northeastern University)
Abstract and paper not available anymore.