Persuasion typically requires spending significant amount of resources to acquire information capable of changing the beliefs of the others. These resourcesare then taken from other economic uses, such as investment, creating an important tradeoff in resource allocation.We investigate how competition in persuasion shapes the allocation of resources between information acquisition and productive uses.In the setting that we consider several agents attempt to persuade the principal to take a favorable decision to them and unfavorable to other agents.Persuasion requires acquiring costly and verifiable information that can affect the principal's decision.Each agent is endowed with a budget that can either be invested into improving the quality of the agent's good or project, or directed towards acquiring information about the latter's quality.
The resource allocation decisions are private, and the principal only observes the signals that each agent has acquired. Upon observing these signals, the principal decides which project to adopt: we assume that the principal can adopt only one of the projects. While in our setting of pure persuasion agents only care about the project adoption decision, independent of the project quality, the principal wants to choose the project with the highest expected return based on the observed signals.
We characterize the equilibrium allocation of resources between productive investment and information acquisitionin static and dynamic settings of information acquisition.Somewhat surprisingly, we show that competition can decrease the overall efficiency due to overinvestment in information acquisitionto persuade the principal.
We demonstrate that the agents' investment in information acquisition can be either strategic complements or strategic substitutes depending on theparameters of the quality uncertainty and the noise in the information acquisition.