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Optimal Information Disclosure

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  • Luis Rayo
  • Ilya Segal

Abstract

A sender randomly draws a "prospect" characterized by its profitability to the sender and its relevance to a receiver. The receiver observes only a signal provided by the sender and accepts the prospect if his Bayesian inference about the prospect's relevance exceeds his opportunity cost. The sender's profits are typically maximized by partial information disclosure, whereby the receiver is induced to accept less relevant but more profitable prospects ("switches") by pooling them with more relevant but less profitable ones ("baits"). Extensions include maximizing a weighted sum of sender profits and receiver surplus and allowing the sender to use monetary incentives.

Suggested Citation

  • Luis Rayo & Ilya Segal, 2010. "Optimal Information Disclosure," Journal of Political Economy, University of Chicago Press, vol. 118(5), pages 949-987.
  • Handle: RePEc:ucp:jpolec:doi:10.1086/657922
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    File URL: http://dx.doi.org/10.1086/657922
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    References listed on IDEAS

    as
    1. Kihlstrom, Richard E & Riordan, Michael H, 1984. "Advertising as a Signal," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 427-450, June.
    2. Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-754, July/Aug..
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