Speaker: Dr. Srijita Ghosh, Ashoka University

Date & Hour: 28 October 2020, 4:00 pm

Title: Convincing Non-believers by Silence: Information Design in presence of Negative Externality

Abstract: We consider an economic decision context where agents require novel scientific or technical information and a planner has economies of scale in learning. We assume learning is accessible costly for anyone in the economy. However, in the presence of an externality conveying information truthfully can lead to ignoring the planner’s recommendation, if the private and social optimal choices do not align. In this paper, we investigate the optimal information policy where the planner can either learn on behalf of the agents and send a recommendation or stay silent and let agents sift through available information. We use the standard framework of information design a la Kamenica and Gentzkow(2011) with a cost of learning function modeled a la Rational Inattention literature and find that similar to Kamenica and Gentzkow (2011), when the planner recommends his less preferred action, agents follow it, but unlike them, we find that no recommendation dominates partial or full revelation for the planner’s most preferred action. Since the agents have access to costly information, no recommendation optimally changes their consideration set leading to a welfare-improving equilibrium.