The Wrong Kind of Information

Aditya Kuvalekar, Jo\~ao Ramos and Johannes Schneider

Papers from arXiv.org

Abstract: Agents, some with a bias, decide between undertaking a risky project and a safe alternative based on information about the project's efficiency. Only a part of that information is verifiable. Unbiased agents want to undertake only efficient projects, while biased agents want to undertake any project. If the project causes harm, a court examines the verifiable information, forms a belief about the agent's type, and decides the punishment. Tension arises between deterring inefficient projects and a chilling effect on using the unverifiable information. Improving the unverifiable information always increases overall efficiency, but improving the verifiable information may reduce efficiency.

Date: 2021-11, Revised 2022-06
New Economics Papers: this item is included in nep-mic and nep-ppm
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Published in RAND Journal of Economics, 2023

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2111.04172

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