Research Area C2

Information economics

PIs: Moldovano, Rady

Contributions by Dilmé,Hoffmann,Krähmer,Lauermann,Pollrich,Szalay,Tran



Topic and goals

Information shapes the way individuals and groups make decisions. Modern economic theory

recognizes information as a scarce good that is dispersed among many agents: time and resources

have to be spent to acquire information, and individuals typically differ in the information

generating technology they can deploy. The performance of institutions that govern collective

decision-making crucially depends on the incentives they provide for individuals to acquire information,

on their ability to aggregate information, and on the information to which they themselves

give access. The research area thus focuses on three themes: information acquisition, information

aggregation, and information design.

State of the art, our expertise

Information acquisition. In many situations, decision-relevant information must be acquired at

a cost. A mechanism then not only serves to elicit information ex post but, as emphasized by

Bergemann and Välimäki, must also provide appropriate incentives for its acquisition ex ante.

This may lead to additional distortions beyond those that are caused by agents’ private information.

As a case in point, Krähmer–Strausz [KS11] considered a procurement problem where the

supplier chooses how much information to acquire about his production costs. Depending on

the supplier’s ex ante information, the optimal contract systematically induces inefficiently low or

inefficiently high levels of information acquisition. Also considering a procurement setting, Szalay

[Sza09] allowed for general information acquisition technologies. In [Sza05], he determined optimal

decision procedures and information acquisition in a communication game with commitment.

In ongoing work, by contrast, Deimen and Szalay assume no commitment to decision rules.

When information can only be acquired by costly search or experimentation, an intertemporal

trade-off arises between the immediate payoff today and the option value of a possibly higher

payoff tomorrow. Klein–Rady [KR11] studied a strategic experimentation problem in which the

characteristics of the risky options to be explored are negatively correlated across players; see

Figure (a). Rady et al. [HRS15] analyzed how privacy of payoff information affects the equilibrium

level of experimentation. Rady et al. [PRT17] investigated optimal experimentation by a platform

provider who is uncertain about the externalities that the participants exert on each other.


Information aggregation. Centralized markets were among the first institutions studied and advocated

for their ability to elicit and aggregate information. In recent work, Lauermann et al. [LW16,

LW17, LMV17] addressed information aggregation in decentralized search settings. Moldovanu

et al. [JM01, JMMZ06] advanced the general normative analysis of institutions in the presence of

interdependent preferences, identifying the theoretical limits imposed by incentive constraints in

any market or non-market context. Tran established connections between the theory of mechanism

design and tropical geometry.

Analogously to markets, elections – and institutions for collective decision-making more generally

– solve informational problems when participants have different priorities and may be uncertain

about what candidate or policy best serves their interests. Applications here include voting

in committees and legislatures, general elections and shareholder voting. Moldovanu and coauthors’

recent contributions [GMS16, KM17] to optimal voting rules with private information – see

Figure (b) – provide benchmarks and suggestions for the design of good institutions.


Information design. Traditionally, mechanism design takes individuals’ information as given and

optimizes over different forms of interaction among individuals. Information design reverses this

perspective by taking the interaction among individuals as given but allowing the designer to

control the information to which individuals get access. Interest in this problem was boosted

by Kamenica and Gentzkow’s analysis of a sender-receiver game in which the sender can successfully

manipulate the receiver’s actions by only controlling the latter’s access to information.

Identifying an order on information structures in games of incomplete information, Bergemann

and Morris showed how to approach such Bayesian persuasion in multi-player settings.

An important application of information design is disclosure in markets. Sellers frequently


provide information to consumers prior to the purchasing decision, for instance in the form of

product samples. Hoffmann–Inderst [HI11] characterized the optimal discriminatory disclosure

policy when increasing the quality of pre-sale information is costly. Krähmer–Strausz [KS15]

identified the information rents a monopolist has to concede by providing additional information

and showed that they may cause inefficient partial disclosure. Dilmé–Li [DL16] highlighted the

inefficiency that may arise when private information is revealed through actions rather than disclosure.

As shown by Pollrich [Pol17], sophisticated communication is also crucial in principal-agent

relationships with auditing.

Research program

Information acquisition. While search theory typically postulates that all traders know the distribution

of the terms of trade from which they are sampling, we will study search under uncertainty

about this distribution, allowing participants to learn from experience. The Poisson-process modeling

approach adopted in previous work by Rady promises to be particularly useful for deriving

closed-form solutions. It may also help us examine how agents will optimally learn when they

can choose among various options (or markets), in addition to choosing a stopping time as in

conventional search models.

Learning dynamics will also be at the center of our investigation of information acquisition

via experimentation. Building on [KR11], we will consider more general correlation structures

between the characteristics of the different players’ risky projects. We will also address experimentation

with restless bandits whose characteristics change stochastically over time, so that

there is an incentive to learn even in the very long run. Further research into the dynamics of

market platforms with cross-group externalities will build on [PRT17]. In all these settings, a pre-

cise understanding of the stochastic process of posterior beliefs is crucial. The analysis of the

relevant stochastic differential equations will benefit from cooperation with RA B1.


Information aggregation. Challenges in the theory of information aggregation arise both in settings

where monetary transfers are feasible and in settings where they are not. In decentralized

markets with large frictions, it is important to understand how uncertainty about aggregate market

conditions affects market outcomes through its impact on bargaining and search, and whether the

release of public information can enhance efficiency. We will address these questions in equilibrium

search models that build on [LMV17] and incorporate learning, and in auction models that

build on [LW17] and feature an auctioneer searching for bidders. While these approaches take

a particular trading institution as given, we will also contribute to the theoretical foundations of

trading institutions by advancing the theory of mechanism design with transfers. This will have

important repercussions on our understanding of auctions and two-sided matching and, at the

same time, raise interesting technical issues. The generalization of revenue-maximizing mechanisms

to environments with convex preferences, for instance, will require tools from convex

optimization and majorization, together with a characterization of the extreme points of particular

sets of monotone functions in L1via doubly stochastic operators. The work on matching will use

tools from transport theory, establishing a close link with RA B3.

When transfers are infeasible, collective choices are often made by means of voting procedures.

We will study the effectiveness of particular voting institutions in the presence of interdependent

values, emphasizing ‘informal elections’ such as petitions, social media, and protests.

This will be embedded in investigations of the general design of mechanisms without transfers.

An important open problem here is the identification of settings in which there is equivalence

between Bayesian and dominant-strategy implementation; for mechanisms with transfers, this

equivalence was established by Moldovanu et al. in [GGK+13] using tools from the mathematics

of computed tomography. In the specific context of voting problems, Moldovanu and coauthors

[GMS16, KM17] showed that sequential binary voting procedures possess strong optimality properties

under single-peaked preferences. The challenge is to extend these results to environments

with interdependent valuations, for which it is well known from analogous auction settings that

dynamic procedures can improve upon static ones. Like in our research on dynamic information

acquisition, stochastic dynamic programming and Bayesian learning will play a central role here.


Information design. Existing work on information design largely abstracts from constraints imposed

by the (market) environment in which information transmission takes place. Thus, a major

challenge in information design is to understand the extent to which plausible economic constraints

affect the designer’s ability to induce the desired outcome. Such constraints can often

be operationalized with techniques from convex analysis. As a leading application, we will study

information disclosure in auctions, where a designer is typically unable to inform a bidder about

the valuations of competing bidders. We will also extend existing frameworks by allowing a seller

to randomize over various information disclosure rules, creating potentially useful correlation between

the seller’s and the buyers’ information.

The standard information-design paradigm assumes that information is directly passed on to

a decision-maker. By contrast, we will study information design when the information is provided

to a sender in a game of strategic information transmission. Since the sender acts as a strategic

filter, the communication channel puts natural constraints on the outcomes that can be induced

through information design. We plan to extend this analysis to market settings, where existing

theory assumes that players receive information directly from non-strategic sources, whereas in

practice many information providers (such as central bankers or market makers) are clearly motivated

by strategic considerations. We will examine the optimal timing of disclosure by strategic

agents, the inefficiencies that delayed information disclosure involves, and the value of committing

to a particular disclosure strategy. One major aim is to determine policy interventions that

minimize the welfare cost of inefficient disclosure strategies or induce agents to commit to a socially desirable disclosure strategy.


Combining a broad range of economic approaches and mathematical tools, RA C2 addresses

open questions in information acquisition, information aggregation, and information design. Its

aim is to produce fundamental insights into the workings of important market and non-market

institutions for resource allocation and collective decision making. The application of transport

theory and the analysis of stochastic dynamics create connections with RAs B1 and B3.




[DL16] F. Dilmé and F. Li. Dynamic signaling with dropout risk. Am. Econ. J.: Microecon., 8(1):57–82,


[GGK+13] A. Gershkov, J. K. Goeree, A. Kushnir, B. Moldovanu, and X. Shi. On the equivalence of

Bayesian and dominant strategy implementation. Econometrica, 81(1):197–220, 2013.

[GMS16] A. Gershkov, B. Moldovanu, and X. Shi. Optimal voting rules. Rev. Econ. Stud., 84(2):688–

717, 2016.

[HI11] F. Hoffmann and R. Inderst. Pre-sale information. J. Econ. Theory, 146(6):2333–2355, 2011.

[HRS15] P. Heidhues, S. Rady, and P. Strack. Strategic experimentation with private payoffs. J. Econ.

Theory, 159(A):531–551, 2015.

[JM01] P. Jehiel and B. Moldovanu. Efficient design with interdependent valuations. Econometrica,

69(5):1237–1259, 2001.

[JMMZ06] P. Jehiel, M. Meyer-ter-Vehn, B. Moldovanu, and W. R. Zame. The limits of ex-post implementation.

Econometrica, 74(3):585–610, 2006.

[KM17] A. Kleiner and B. Moldovanu. Content-based agendas and qualified majorities in sequential

voting. Am. Econ. Rev., 107(6):1477–1506, 2017.

[KR11] N. Klein and S. Rady. Negatively correlated bandits. Rev. Econ. Stud., 78(2):693–732, 2011.

[KS11] D. Krähmer and R. Strausz. Public procurement with pre-project planning. Rev. Econ. Stud.,

78(3):1015–1041, 2011.

[KS15] D. Krähmer and R. Strausz. Ex post information rents in sequential screening. Games Econ.

Behav., 90:257–273, 2015.

[LMV17] S. Lauermann, W. Merzyn, and G. Virág. Learning and price discovery in a search model.

Rev. Econ. Stud., 2017. DOI:10.1093/restud/rdx029.

[LW16] S. Lauermann and A. Wolinsky. Search with adverse selection. Econometrica, 84(1):243–

315, 2016.

[LW17] S. Lauermann and A. Wolinsky. Bidder solicitation, adverse selection, and the failure of competition.

Am. Econ. Rev., 107(6):1399–1429, 2017.

[Pol17] M. Pollrich. Mediated audits. RAND J. Econ., 48(1):44–68, 2017.

[PRT17] M. Peitz, S. Rady, and P. Trepper. Experimentation in two-sided markets. J. Eur. Econ. Assoc.,

15(1):128–172, 2017.

[Sza05] D. Szalay. The economics of extreme options and clear advice. Rev. Econ. Stud., 72(4):1173–

1198, 2005.

[Sza09] D. Szalay. Contracts with endogenous information. Games Econ. Behav., 65:586–625, 2009.