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Costly Verification in Collective Decisions

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  • Albin Erlanson
  • Andreas Kleiner

Abstract

We study how a principal should optimally choose between implementing a new policy and maintaining the status quo when information relevant for the decision is privately held by agents. Agents are strategic in revealing their information; the principal cannot use monetary transfers to elicit this information, but can verify an agent's claim at a cost. We characterize the mechanism that maximizes the expected utility of the principal. This mechanism can be implemented as a cardinal voting rule, in which agents can either cast a baseline vote, indicating only whether they are in favor of the new policy, or they make specific claims about their type. The principal gives more weight to specific claims and verifies a claim whenever it is decisive.

Suggested Citation

  • Albin Erlanson & Andreas Kleiner, 2019. "Costly Verification in Collective Decisions," Papers 1910.13979, arXiv.org, revised Feb 2020.
    • Handle: RePEc:arx:papers:1910.13979
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    References listed on IDEAS

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    1. Erlanson, Albin & Kleiner, Andreas, 2020. "Costly verification in collective decisions," Theoretical Economics, Econometric Society, vol. 15(3), July.
    2. Jerry R. Green & Jean-Jacques Laffont, 1986. "Partially Verifiable Information and Mechanism Design," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(3), pages 447-456.
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    Cited by:

    1. Elchanan Ben‐Porath & Eddie Dekel & Barton L. Lipman, 2019. "Mechanisms With Evidence: Commitment and Robustness," Econometrica, Econometric Society, vol. 87(2), pages 529-566, March.
    2. Pereyra, Juan Sebastián & Silva, Francisco, 2023. "Optimal assignment mechanisms with imperfect verification," Theoretical Economics, Econometric Society, vol. 18(2), May.
    3. Albin Erlanson & Andreas Kleiner, 2024. "Optimal allocations with capacity constrained verification," Papers 2409.02031, arXiv.org.
    4. Ian Ball & Deniz Kattwinkel, 2019. "Probabilistic Verification in Mechanism Design," Papers 1908.05556, arXiv.org, revised Jul 2024.
    5. Li, Yunan & Zhang, Xingtan, 2024. "Collective decision through an informed mediator," Journal of Economic Theory, Elsevier, vol. 218(C).
    6. Marina Halac & Pierre Yared, 2016. "Commitment vs. Flexibility with Costly Verification," NBER Working Papers 22936, National Bureau of Economic Research, Inc.
    7. Alireza Fallah & Michael I. Jordan, 2023. "Contract Design With Safety Inspections," Papers 2311.02537, arXiv.org.
    8. Erlanson, Albin & Kleiner, Andreas, 2020. "Costly verification in collective decisions," Theoretical Economics, Econometric Society, vol. 15(3), July.
    9. Erlanson, Albin & Kleiner, Andreas, 2019. "A note on optimal allocation with costly verification," Journal of Mathematical Economics, Elsevier, vol. 84(C), pages 56-62.

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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations

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