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Information Design under Falsification

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  • Skreta, Vasiliki
  • Perez-Richet, Eduardo

Abstract

We derive an optimal test when cheating is possible in the form of type falsification. Optimal design exploits the following trade-off: while cheating may lead to better grades, it devalues their meaning. We show that optimal tests can be derived among cheating- proof ones. Our optimal test has a single ‘failing’ grade, and a continuum of ‘passing’ grades. It makes the agent indifferent across all moderate levels of cheating. Good types never fail, but bad types may pass. An optimal test delivers at least half of the full information value. A three-grade optimal test also performs well

Suggested Citation

  • Skreta, Vasiliki & Perez-Richet, Eduardo, 2017. "Information Design under Falsification," CEPR Discussion Papers 12271, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:12271
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    References listed on IDEAS

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    1. Juan Ortner & Sylvain Chassang, 2018. "Making Corruption Harder: Asymmetric Information, Collusion, and Crime," Journal of Political Economy, University of Chicago Press, vol. 126(5), pages 2108-2133.
    2. Lacker, Jeffrey M & Weinberg, John A, 1989. "Optimal Contracts under Costly State Falsification," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1345-1363, December.
    3. Borys Grochulski, 2007. "Optimal nonlinear income taxation with costly tax avoidance," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 93(Win), pages 77-109.
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    Cited by:

    1. Pak Hung Au & Mark Whitmeyer, 2018. "Attraction versus Persuasion: Information Provision in Search Markets," Papers 1802.09396, arXiv.org, revised May 2022.
    2. Artem Hulko & Mark Whitmeyer, 2017. "A Game of Random Variables," Papers 1712.08716, arXiv.org, revised Apr 2018.

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