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« Back to Results

Information Design and Market Design

Paper Session

Friday, Jan. 5, 2018 2:30 PM - 4:30 PM

Pennsylvania Convention Center, 203-B
Hosted By: American Economic Association
  • Chair: Dirk Bergemann, Yale University

Information and Market Power

Dirk Bergemann
,
Yale University
Tibor Alejandro Heumann
,
Princeton University
Stephen Morris
,
Princeton University

Abstract

We analyze demand function competition with a finite number of agents and private information. We show that the nature of the private information determines the market power of the agents and thus price and volume of equilibrium trade.

We establish our results by providing a characterization of the set of all joint distributions over demands and payoff states that can arise in equilibrium under any information structure. In demand function competition, the agents condition their demand on the endogenous information contained in the price.

We compare the set of feasible outcomes under demand function to the feasible outcomes under Cournot competition. We find that the first and second moments of the equilibrium distribution respond very differently to the private information of the agents under these two market structures. The first moment of the equilibrium demand, the average demand, is more sensitive to the nature of the private information in demand function competition, reflecting the strategic impact of private information. By contrast, the second moments are less sensitive to the private information, reflecting the common conditioning on the price among the agents.

Persuasion in Global Games with Application to Stress Testing

Alessandro Pavan
,
Northwestern University
Nicolas Inostroza
,
Northwestern University

Abstract

We study robust/adversarial information design in global games of regime change. We consider both the case in which the designer is constrained to disclose the same information to all market participants, as well as the case in which discriminatory disclosures are possible. In both cases, we show that the optimal policy has the “perfect coordination property”: it coordinates all market participants on the same course of action. Importantly, while the optimal policy removes any “strategic uncertainty,” it preserves (and in some cases, it enhances) heterogeneity in “structural uncertainty”. Under the optimal policy, each agent can perfectly predict the actions of any other agent, but not the beliefs that rationalize such actions. When the designer is constrained to public disclosures, we identify conditions under which the optimal policy takes the form of a simple “pass/fail” test, as well as conditions under which the optimal test is monotone (i.e., it fails with certainty institutions with weak fundamentals and passes those with strong ones). We then discuss the benefits of discriminatory disclosures and show that the latter come from the possibility to “divide-and-conquer” the market: by combining a pass/fail public announcement with discriminatory disclosures that enhance the dispersion of higher-order beliefs, the policy maker minimizes the risk of regime change, while coordinating the market on the same course of action.

Sequential Information Design

Laura Doval
,
Yale University and California Institute of Technology
Jeffrey C. Ely
,
Northwestern University

Abstract

We study information design in a multi - agent scenario. Information
design in this case has to take into account both the release of
information about the state of the world, but also about the actions
chosen by others, and the timing of these actions. We characterize the
set of distributions over outcomes that a principal can implement in
perfect Bayesian equilibrium when she can structure not just the
information observed by the agents, but also the timing of their
actions, and the timing of the revelation of information about the
state and about others’ actions. The characterization is constructive:
under conditions on the set of extensive forms that the principal can
offer, we show that, without loss of generality, the principal can
offer a particular extensive form. The latter is an extensive form in
which there is a randomization device, which not only sends (private)
recommendations to the agents, but also selects the order in which the
agents move; moreover, subsequent recommendations can be made
conditional on actions already taken. This result strictly generalizes
Aumann’s notion of correlated equilibrium, when the set of states is a
singleton, and Bergemann and Morris’ notion of Bayes’ correlated
equilibrium. We extend the result to the case in which agents have
private information. The framework has applications to public good
games, voting, and deliberation.

Toward an Ethical Experiment: Another Kind of Information Design

Yusuke Narita
,
Yale University

Abstract

Randomized Controlled Trials (RCT) enroll hundreds of millions of subjects and involve many human lives. To respect subjects’ welfare, I propose an alternative design of RCT which I call Experiment-as-Market (EXaM). EXaM optimally randomly assigns each treatment to subjects predicted to experience better treatment effects, or to subjects with stronger preferences for the treatment. EXaM is also almost incentive compatible for preference elicitation. Finally, EXaM unbiasedly estimates any causal effect estimable with standard RCT. I quantify these properties by applying EXaM to a water cleaning experiment in Kenya (Kremer et al., 2011). Compared to usual RCT, EXaM substantially improves subjects’ predicted well-being while reaching similar treatment effect estimates with similar precision.
Discussant(s)
Gabriel Carroll
,
Stanford University
Piotr Dworczak
,
University of Chicago
Yeon-Koo Che
,
Columbia University
Fuhito Kojima
,
Stanford University
JEL Classifications
  • C7 - Game Theory and Bargaining Theory
  • D8 - Information, Knowledge, and Uncertainty