Topics in the Organization of Markets and Institutions

Northwestern University, Evanston IL

Investigators

Abstract

The purpose of this project is to advance the understanding of a class of fundamental situations in which decision makers have to act on the basis of information obtained from better informed experts. The basic tension is that the experts' advice and information acquisition are affected by their own interests that need not coincide with those of the decision makers. The proposal outlines three directions within this larger problem. One direction deals with the interaction between an uninformed decision maker and potentially more informed experts in the context of a market setting. The underlying problem is that experts have to make an unobservable effort to acquire the information needed by the decision maker. The market setting enters the picture in that there are many competing experts from whom the decision maker can solicit opinions, and that fees are determined endogenously in competition. Repair services and perhaps certain medical services provide examples for this sort of situation. The objective is to understand the functioning of such markets with respect to prices, the nature of contracts and welfare. The second direction concerns situations in which a decision maker faces multiple experts who share similar biases. The main insights obtained in preliminary work in this direction concern the organization of the communication within a group of such experts in situations in which the decision maker cannot perfectly commit to a mechanism. It turns out that certain patterns of communication among the experts mitigate to some extent the negative effect of the lack of commitment and that partial communication might achieve more information revelation than either no communication or full communication. The third direction proposes to explore further the problem of information gathering in situations where the decision maker cannot perfectly commit to a mechanism. The intention here is to identify some of the main forms that the inability to commit takes and to explore what can be achieved by mechanisms that respect the additional constraints imposed by the lack of commitment.