Paying and Persuading

Daniel Luo

Papers from arXiv.org

Abstract: We study the joint design of information and transfers when an informed Sender can motivate Receiver by both paying and (Bayesian) persuading. We introduce an augmented concavification method to characterize Sender's value from jointly designing information and transfers. We use this characterization to show Sender strictly benefits from combining information and payments whenever the actions induced at adjacent kinks in the augmented concavification differ from those in the information-only concavification. When Receiver has an outside option, Sender always first increases the informativeness of their experiment before adjusting transfers - payments change if and only if full revelation does not meet Receiver's outside option constraint. Moreover, we show repeated interactions cannot restore ex-post efficiency, even with transfers and arbitrarily patient agents. However, Sender benefits from linking incentives so long as Receiver prefers the stage-game optimal information structure to no information. Our results have implications for platforms such as Uber, where both monetary rewards and strategic information disclosure influence driver behavior.

Date: 2025-03
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