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When Second Opinions Hurt: A Model of Expert Advice under Career Conce rns

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  • Liu, Yaozhou Franklin
  • Sanyal, Amal

Abstract

We augment the standard career concerns model by introducing (i) an action that blocks the information about the true state of the world and (ii) the possibility that the principal might reverse her initial action after receiving an interim news. In this model, the principal's decisions as well as the expert's message endogenously determine the observability of the states and consequently, the assessment of the expert's ability by the principal. We show that having access to better interim news could reduce the welfare of the principal due to its strategic eff ect on the expert's recommendation. We also discuss the implication of the results for possible delegation of decision making to another person with di fferent preference parameters.

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File URL: http://hdl.handle.net/2123/7115
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Bibliographic Info

Paper provided by University of Sydney, School of Economics in its series Working Papers with number 2010-08.

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Date of creation: Dec 2010
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Handle: RePEc:syd:wpaper:2123/7115

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Postal: Sydney, NSW 2006
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Web page: http://sydney.edu.au/arts/economics
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Keywords: Career Concerns; Reputational Cheaptalk; Signaling Game;

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Cited by:
  1. Fu, Qiang & Li, Ming, 2014. "Reputation-concerned policy makers and institutional status quo bias," Journal of Public Economics, Elsevier, vol. 110(C), pages 15-25.

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