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Information Design In Allocation With Costly Verification

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  • Yi‐Chun Chen
  • Gaoji Hu
  • Xiangqian Yang

Abstract

We study information design in a single‐agent allocation problem with costly verification, where the principal has a positive reservation value. The agent learns privately a signal about the principal's allocation value, drawn from a distribution controlled by an information designer. Given the signal distribution, the principal designs a mechanism to maximize her net value. We show that the agent‐optimal information pools high values at a signal just worth verification, whereas the principal‐optimal information features full disclosure. Moreover, any agent‐optimal information is principal‐worst, despite their partially aligned interests and the absence of transfers.

Suggested Citation

  • Yi‐Chun Chen & Gaoji Hu & Xiangqian Yang, 2025. "Information Design In Allocation With Costly Verification," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 66(3), pages 1267-1285, August.
    • Handle: RePEc:wly:iecrev:v:66:y:2025:i:3:p:1267-1285
    DOI: 10.1111/iere.12754
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