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The wrong kind of information

Author

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  • Aditya Kuvalekar
  • João Ramos
  • Johannes Schneider

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, but 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.

Suggested Citation

  • Aditya Kuvalekar & João Ramos & Johannes Schneider, 2023. "The wrong kind of information," RAND Journal of Economics, RAND Corporation, vol. 54(2), pages 360-384, June.
    • Handle: RePEc:bla:randje:v:54:y:2023:i:2:p:360-384
    DOI: 10.1111/1756-2171.12440
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    References listed on IDEAS

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