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Dynamic Information Design under Constrained Communication Rules

Author

Listed:
  • Caio Lorecchio
  • Daniel Monte

Abstract

An information designer wishes to persuade agents to invest in a project of unknown quality. To do so, she must induce investment and collect feedback from these investments. Motivated by data regulations and simplicity concerns, our designer faces communication constraints. These constraints hinder her without benefiting the agents: they impose an upper bound on the induced belief spread, limiting persuasion. Nevertheless, two-rating systems (direct recommendations) are the optimal design when experimentation is needed to generate information and approximate the designer's first-best payoff for specific feedback structures. When the designer has altruistic motives, constrained rules significantly decrease welfare.

Suggested Citation

  • Caio Lorecchio & Daniel Monte, 2023. "Dynamic Information Design under Constrained Communication Rules," American Economic Journal: Microeconomics, American Economic Association, vol. 15(1), pages 359-398, February.
    • Handle: RePEc:aea:aejmic:v:15:y:2023:i:1:p:359-98
    DOI: 10.1257/mic.20200356
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    More about this item

    JEL classification:

    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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