Information Design under Falsification

Vasiliki Skreta and Eduardo Perez

No 12271, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We derive an optimal test when cheating is possible in the form of type falsification. Optimal design exploits the following trade-off: while cheating may lead to better grades, it devalues their meaning. We show that optimal tests can be derived among cheating- proof ones. Our optimal test has a single ‘failing’ grade, and a continuum of ‘passing’ grades. It makes the agent indifferent across all moderate levels of cheating. Good types never fail, but bad types may pass. An optimal test delivers at least half of the full information value. A three-grade optimal test also performs well

Date: 2017-09
New Economics Papers: this item is included in nep-des
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