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Biased Information and Effort

  • Julie Rosaz

    (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon)

We study the impact of information manipulation by a principal on the agent's effort. In a context of asymmetric information at the principal's advantage, we test experimentally the principal's willingness to bias (overestimate or under-estimate) the information she gives to her agent on his ability in order to motivate him to exert more effort. We find that i) principals do bias information, ii) agents trust the cheap-talk messages they receive and adjust their effort accordingly. Therefore, biased messages improve both the agent's performance and thus the principal's profit. This, however, does not increase efficiency. We also find that over-estimation occurs much more often than under-estimation. Making the signal costly in an additional treatment reduces this effect.

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Paper provided by HAL in its series Post-Print with number halshs-00527563.

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Date of creation: 2012
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Publication status: Published, Economic Inquiry, 2012, 50, 2, pp. 484-501
Handle: RePEc:hal:journl:halshs-00527563
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00527563
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  1. Santiago Sánchez-Pagés & Marc Vorsatz, 2009. "Enjoy the silence: an experiment on truth-telling," Experimental Economics, Springer, vol. 12(2), pages 220-241, June.
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