Conferences at Department of Economics, University of Toronto, Canadian Economic Theory Conference 2011

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Dynamic Informational Control

Maxim Ivanov*

Date: 2011-05-13 4:30 pm – 5:00 pm
Last modified: 2011-04-09

Abstract


This paper investigates a multi-stage model of informational control, i.e., cheap-talk communication between an informed expert and an uninformed principal by Crawford and Sobel (1982), such that the principal can affect the quality of expert's private information without learning its content. We construct the two-stage procedure of dynamic updating of expert's information that allows the principal to elicit perfect information from the expert about an unknown single- or multi-dimensional state and reach his first-best outcome if the bias in preferences is not too large relative to the size of the state space. If the state space is unbounded, full information extraction is possible for an arbitrarily large bias under some regularity conditions.