Costless Information and Costly Verification: A Case for Transparency

Deniz Kattwinkel () and Jan Knoepfle

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: A principal has to take a binary decision. She relies on information privately held by a completely biased agent. The principal cannot incentivize with transfers but can learn the agent's information at a cost. Additionally, the principal privately observes a signal correlated with the agent's type. Transparent mechanisms are optimal: unlike in standard results with correlation, the principal's payoff is the same as if her signal was public. They take a simple cut-off form: favorable signals ensure the agent's preferred action. Signals below this cut-off lead to the nonpreferred action unless the agent appeals. An appeal always triggers type verification.

Keywords: Mechanism Design without Transfers; Costly Verification; Robust Mechanism Design; Transparency (search for similar items in EconPapers)
JEL-codes: D61 D82 K40 (search for similar items in EconPapers)
Pages: 41
Date: 2019-07
New Economics Papers: this item is included in nep-des and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2019_114

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