The Wrong Kind of Information

Aditya Kuvalekar, João Ramos and Johannes Schneider ()

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

Abstract: Agents, some with a bias, decide between undertaking a risky project and a safe alternative based on information about the project's efficiency. Only a part of that information is verifiable. Unbiased agents want to undertake only efficient projects, while biased agents want to undertake any project. If the project causes harm, a court examines the verifiable information, forms a belief about the agent's type, and decides the punishment. Tension arises between deterring inefficient projects and a chilling effect on using the unverifiable information. Improving the unverifiable information always increases overall efficiency, but improving the verifiable information may reduce efficiency.

Keywords: deterrence; chilling effect; screening (search for similar items in EconPapers)
JEL-codes: D01 K13 L51 (search for similar items in EconPapers)
Pages: 45
Date: 2022-06
New Economics Papers: this item is included in nep-dem, nep-law, nep-mic and nep-ppm
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