Endogenous Persuasion with Costly Verification

Mike Felgenhauer

Scandinavian Journal of Economics, 2019, vol. 121, issue 3, 1054-1087

Abstract: In this paper, I study a situation in which a sender tries to persuade a receiver with evidence that is generated via public or private experimentation. Under public experimentation, any experimental outcome is revealed, and under private experimentation the sender can hide adverse outcomes. The sender can design the properties of the experiments. The receiver chooses whether to verify at a cost the design of the experiment with which the revealed outcome was generated. I find that communication breaks down under public experimentation if there is no restriction on the experiment's design, and that persuasion is possible under private experimentation.

Date: 2019
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