SMU SOE Seminar (Dec 9, 2016): Optimal Public Information Disclosure by Mechanism Design

    This paper considers mechanism design environments where a principal can disclose some information relevant to agents. As opposed to the standard “informed principal” approach with no commitment as to the principal’s information disclosure, we consider fully committed (public) information disclosure by the principal, implying more tractability and hence wider applicability. In linear environments with no restriction on monetary transfers (e.g., auction of Myerson (1981)), we show that the principal finds it optimal to fully disclose his information. With a budget-balance restriction on monetary transfers (e.g., bilateral trading of Myerson and Satterthwaite (1983)), full disclosure may be suboptimal. In a bilateral-trading environment with uniformly distributed types, I characterize the second-best information disclosure policy, which is a simple censoring policy. The technique developed for this second-best characterization may be useful to tractably analyze general Bayesian persuasion problems with continuous state spaces. 

Keywords: Public information disclosure, censoring, Bayesian persuasion problems

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