The Perverse Incentive of Knowing the Truth
We show that the observation by a principal of the effectiveness of an expert‘s action could induce the expert to lie, damaging the principal. A career-minded expert receives a private-informative signal about the real state of the world, and then he takes an action that can match or not the real state. If a principal observes the consequences of this expert’s action, i.e., if the action matches or not the real state, this expert could disregard his valuable information damaging the principal: the expert plays the opposite action to that recommended by his signal and consequently decreases the probability of matching the real state. However, this expert could play the "recommended" action with positive probability if consequences are not observed. The previous literature has found that "transparency of consequence" can only improves the incentives of the expert to reveal his valuable information. The paradoxical behavior we have found can appear when the expert needs to signal with one action two different kinds of information, and there is a particular "trade-off" in the way of signaling; this "trade-off" can be affected in an unexpected way by the observation of the expert’s action consequences. In this paper, we present a simple model to capture this idea, and characterize the range of the parameters where that occurs.
|Date of creation:||15 Jan 2013|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Andrea Prat, 2005.
"The Wrong Kind of Transparency,"
American Economic Review,
American Economic Association, vol. 95(3), pages 862-877, June.
- Andrea Prat, 2002. "The Wrong Kind of Transparency," STICERD - Theoretical Economics Paper Series 439, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Andrea Prat, 2002. "The wrong kind of transparency," LSE Research Online Documents on Economics 3679, London School of Economics and Political Science, LSE Library.
- Andrea Prat, 2004. "The wrong kind of transparency," LSE Research Online Documents on Economics 24712, London School of Economics and Political Science, LSE Library.
- Prat, Andrea, 2003. "The Wrong Kind of Transparency," CEPR Discussion Papers 3859, C.E.P.R. Discussion Papers.
- Stephen Morris, 2001. "Political Correctness," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 231-265, April.
- Stephen Morris, 1999. "Political Correctness," Cowles Foundation Discussion Papers 1242, Cowles Foundation for Research in Economics, Yale University.
- Mathias Dewatripont & Ian Jewitt & Jean Tirole, 1999. "The Economics of Career Concerns, Part I: Comparing Information Structures," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 183-198.
- Mathias Dewatripont & Ian Jewitt & Jean Tirole, 1999. "The economics of career concerns: part 1 :comparing information structures," ULB Institutional Repository 2013/9617, ULB -- Universite Libre de Bruxelles.
- Bengt Holmström, 1999. "Managerial Incentive Problems: A Dynamic Perspective," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 169-182.
- Fox, Justin & Van Weelden, Richard, 2012. "Costly transparency," Journal of Public Economics, Elsevier, vol. 96(1), pages 142-150.
- Bengt Holmstrom, 1999. "Managerial Incentive Problems: A Dynamic Perspective," NBER Working Papers 6875, National Bureau of Economic Research, Inc. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:43825. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.