Optimal information disclosure

Luis Rayo*, Ilya Segal

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

125 Scopus citations

Abstract

A sender randomly draws a "prospect" characterized by its profitability to the sender and its relevance to a receiver. The receiver observes only a signal provided by the sender and accepts the prospect if his Bayesian inference about the prospect's relevance exceeds his opportunity cost. The sender's profits are typically maximized by partial information disclosure, whereby the receiver is induced to accept less relevant but more profitable prospects ("switches") by pooling them with more relevant but less profitable ones ("baits"). Extensions include maximizing a weighted sum of sender profits and receiver surplus and allowing the sender to use monetary incentives.

Original languageEnglish (US)
Pages (from-to)949-987
Number of pages39
JournalJournal of Political Economy
Volume118
Issue number5
DOIs
StatePublished - Oct 1 2010

ASJC Scopus subject areas

  • Economics and Econometrics

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