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STICERD Economic Theory Seminars

Socially Efficient Approval Mechanisms with Signalling Costs

Ines Moreno de Barreda (Oxford), joint with Evgenii Safonov

Thursday 07 March 2024 15:30 - 17:00

Many of our seminars and public events this year will continue as in person or as hybrid (online and in person) events. Please check our website listings and Twitter feed @STICERD_LSE for updates.

Unless otherwise specified, in-person seminars are open to the public.

Those unable to join the seminars in-person are welcome to participate via zoom if the event is hybrid.


About this event

We consider an approval problem in which an agent with a privately known continuous type always seeks approval, whereas an uninformed principal favours approval only if the agent's type exceeds a certain standard. The agent sends a report about his type that he can inflate under some increasing cost that has the single-crossing property. We study approval mechanisms without transfers that maximize the weighted average of the ex-ante agent's and receiver's payoffs. The rule that maximizes the principal's payoff is a threshold rule, however, such a rule induces high costs for the agent. We show that when the marginal signalling cost is strictly log-supermodular, the efficient approval mechanism is stochastic, introducing an approval probability that is continuous in the agent's type. We provide the necessary first-order conditions for the optimal reporting rule and probability of approval.

Economic Theory Seminars are held on Thursdays in term time at 15:30-17:00, both ONLINE and IN PERSON in SAL 3.05.

Seminar organisers: Dr Andrew Ellis and Dr Christopher Sandmann.

For further information please contact Sadia Ali: s.ali43@lse.ac.uk.

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