Opinions as Incentives

Yeon-Koo Che and Navin Kartik

Journal of Political Economy, 2009, vol. 117, issue 5, 815-860

Abstract: We study costs and benefits of differences of opinion between an adviser and a decision maker. Even when they share the same underlying preferences over decisions, a difference of opinion about payoff-relevant information leads to strategic information acquisition and transmission. A decision maker faces a fundamental trade-off: a greater difference of opinion increases an adviser's incentives to acquire information but exacerbates the strategic disclosure of any information that is acquired. Nevertheless, when choosing from a rich pool of opinion types, it is optimal for a decision maker to select an adviser with some difference of opinion. Centralization of authority is essential to harness these incentive gains since delegation to the adviser can discourage effort. (c) 2009 by The University of Chicago. All rights reserved.

Date: 2009
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Working Paper: Opinion as Incentives (2007)
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