Template-Type: ReDIF-Paper 1.0
Title: Costless Information and Costly Verification: A Case for Transparency
Author-Name: Deniz Kattwinkel
Author-Email: denizkattwinkel@gmail.com
Author-Name: Jan Knoepfle
Author-Email: 
Classification-JEL: D61, D82, K40
Keywords: Mechanism Design without Transfers, Costly Verification, Robust Mechanism Design, Transparency

Abstract: A principal has to take a binary decision. She relies on information privately held by a completely biased agent. The principal cannot incentivize with transfers but can learn the agent's information at a cost. Additionally, the principal privately observes a signal correlated with the agent's type. Transparent mechanisms are optimal: unlike in standard results with correlation, the principal's payoff is the same as if her signal was public. They take a simple cut-off form: favorable signals ensure the agent's preferred action. Signals below this cut-off lead to the nonpreferred action unless the agent appeals. An appeal always triggers type verification. 

Note: 
Length: 41
Creation-Date: 2019-07
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp114
Handle: RePEc:bon:boncrc:CRCTR224_2019_114