Information Exchange in Strategic Settings: Two Illustrations

In many economically interesting situations, individuals have different access to information. Efficient allocations require that this information is shared through the economy, but conflicts of interest sometimes interfere with the ability of self-interested agents to share information. The dissertation investigates two situations in which differences in preferences stand in the way of efficiency and investigates the relationship between equilibrium outcomes and the environment.Chapter 1 studies the implications of adding a cost to providing information to a cheaptalk game. In the model, there are two potential barriers to the complete exchange of information. First, it is costly to send messages. Hence the informed player may not communicate because the costs exceed the benefits. Second, there may be a conflict of interest between the informed party and the uninformed party. In this case, communication must be limited in equilibrium. I show both of these biases may have counterintuitive implications in equilibrium. A sender with less accurate information may be more valuable to the receiver because such a sender may communicate more often. A sender with a larger bias can be more valuable to the receiver for the same reason. When signaling is costly, the act of signaling can be informative. As a consequence, a low cost of communication may reduce the quality of communication. Finally, a sender may prefer a “cheaper” but less effective communication technology ex-ante.Chapter 2 studies the design of research contests where achieving the final discovery requires achieving an intermediate breakthrough that produces knowledge. Ideally, researchers should share their intermediate findings in order to avoid duplication of effort, but information sharing need not be in the self-interest of an individual researcher. Nevertheless, I show that a benevolent principal can achieve the social optimal outcome. This result holds even if the principal relies on agents’ voluntary reports to learn the arrival of breakthroughs. When limited liability constrains the ability of the principal to punish a researcher, the principal must offer prizes to a researcher who is late to make the intermediate breakthrough. The “losing prize” prevents a lagging researcher from investing too much – duplicating the effort of the leading researcher – to achieve his intermediate breakthrough and catch up with the leading researcher