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Extremists into Truth-tellers: Information Aggregation under Asymmetric Preferences

Jean-Philippe Bonardi, Olivier Cadot and Lionel Cottier

No 11118, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We set up a model of costly information production between two lobbies, a firm and a consumer group, competing for influence over an imperfectly informed but benevolent government. The government is endowed with a parametric amount of information and chooses the best policy from a finite, countable feasible set given the information available (its own and that forwarded by lobbies). Lobbies have asymmetric preferences, the firm being a high-stakes player with relatively extreme preferences and the consumer group a low-stakes player with preferences more aligned with the government's. We show that lobbies spend too much on information production in any Nash equilibrium despite a timing-game structure in which the lobbies are free to choose the order of play. We also show that in some parameter configurations, the firm insures against a consumer win by forwarding unbiased information to the government, in spite of its own extreme preferences and high stakes. The resulting informational rent enables the government to adopt moderate policies aligned with its own (i.e. societal) preferences, suggesting a new way in which lobby competition can produce good policies even when the government is imperfectly informed.

Keywords: Game theory; imperfect information; lobbying model; timing game (search for similar items in EconPapers)
JEL-codes: D72 F13 H4 K0 P1 (search for similar items in EconPapers)
Date: 2016-02
New Economics Papers: this item is included in nep-cdm and nep-mic
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