Procuring Unverifiable Information

Salil Sharma (), Elias Tsakas () and Mark Voorneveld ()
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Salil Sharma: Department of Economics, Stockholm School of Economics, 113 83 Stockholm, Sweden
Elias Tsakas: Department of Microeconomics and Public Economics, Maastricht University, 6200 MD Maastricht, Netherlands
Mark Voorneveld: Department of Economics, Stockholm School of Economics, 113 83 Stockholm, Sweden

Mathematics of Operations Research, 2025, vol. 50, issue 2, 1433-1453

Abstract: We study settings where information in the form of Bayesian signals is acquired by an expert on behalf of a principal. Information acquisition is costly for the expert and crucially not verifiable by the principal. The expert is compensated by the principal with a menu of state-contingent payments. We provide a full characterization of the set of all menus that implement (respectively, strictly implement) each signal. Moreover, we provide a closed-form characterization for the expected cost for the cheapest such menu, which we call proxy cost of the signal. Surprisingly, in general, the proxy cost is neither increasing in the Blackwell order nor posterior separable, even when the expert’s cost function is posterior separable itself. Subsequently, we study the full-agency problem (by introducing a downstream decision), thus endogenizing the signal. We show that there is always an optimal signal that can be strictly implemented, meaning that it is without loss of generality to exogenously restrict attention to strict implementation. As a result, similarly to Bayesian persuasion, the complexity of the principal’s optimal signal is bounded by the cardinality of the state space. Finally, we present some applications of interest.

Keywords: Primary: 91A80; costly information acquisition; verifiability; implementation; posterior separability; proxy cost; Blackwell monotonicity; complexity (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormoor:v:50:y:2025:i:2:p:1433-1453

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