Conveying value via categories

Paula Onuchic () and Debraj Ray
Additional contact information
Paula Onuchic: Nuffield College, University of Oxford

Theoretical Economics, 2023, vol. 18, issue 4

Abstract: A sender sells an object of unknown quality to a receiver who pays his expected value for it. Sender and receiver might hold different priors over quality. The sender commits to a monotone categorization of quality. We characterize the sender's optimal monotone categorization, the optimality of full pooling or full separation, and make precise a sense in which pooling is dominant relative to separation. As an application, we study the design of a grading scheme by an educational institution which seeks to signal student qualities and simultaneously incentivize students to learn. We show how these incentive constraints are embedded as a distortion of the school's prior over student qualities, generating a monotone categorization problem with distinct sender and receiver priors.

Keywords: Monotonic categorization; heterogeneous priors; information design (search for similar items in EconPapers)
JEL-codes: D82 D83 (search for similar items in EconPapers)
Date: 2023-11-09
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://econtheory.org/ojs/index.php/te/article/viewFile/20231407/37899/1138 (application/pdf)

Related works:
Working Paper: Conveying value via categories (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:the:publsh:5026

Access Statistics for this article

Theoretical Economics is currently edited by Federico Echenique, Mira Frick, Pablo Kurlat, Juuso Toikka, Rakesh Vohra

More articles in Theoretical Economics from Econometric Society
Bibliographic data for series maintained by Martin J. Osborne ().