Abstract: A seller markets a good to a customer whose willingness to pay depends on his private type and the good's quality. The seller designs a screening mechanism that specifies both transfers and information revealed about quality. We show that the optimal mechanism can be implemented by a menu of price-experiment pairs, featuring both price discrimination and information discrimination: buyers with higher private types face lower prices and receive less discerning positive signals. Moreover, we demonstrate the complementarity between these two forms of discrimination. Information design facilitates surplus creation on the extensive margin, but causes surplus destruction on the intensive margin.

Abstract: We study a dynamic stopping game between a principal and an agent. The principal gradually learns about the agent’s private type from a noisy performance measure that can be manipulated by the agent via a costly and hidden action. We fully characterize the unique Markov equilibrium of this game. We find that terminations/market crashes are often preceded by a spike in manipulation intensity and (expected) performance. Moreover, due to endogenous signal manipulation, too much transparency can inhibit learning and harm the principal. As the players get arbitrarily patient, the principal elicits no useful information from the observed signal.

Abstract: A well-intentioned principal provides information to a rationally inattentive agent without internalizing the agent's cost of processing information.  Whatever information the principal makes available, the agent may choose to ignore some. We study optimal information provision in a tractable model with quadratic payoffs where full disclosure is not optimal. We characterize incentive-compatible information policies, that is, those to which the agent willingly pays full attention. In a leading example with three states, optimal disclosure involves information distortion at intermediate costs of attention.  As the cost increases, optimal information abruptly changes from downplaying the state to exaggerating the state.

Abstract: A Sender (seller) tries to persuade a rationally inattentive Receiver (buyer) to take a particular action (e.g., buying). Learning is costly for the Receiver who can choose to process strictly less information than what the sender provides. In a binary-action binary-state model, we show that optimal disclosure involves information distortion, but to a lesser extent than the case without learning costs; meanwhile, the Receiver processes less information than what he would under full disclosure. We also find that the Receiver can leverage his potential inattention to attain a higher equilibrium payoff than the perfectly attentive case. While the Sender is always worse off when facing a less attentive Receiver, the amount of information processed in equilibrium varies with learning costs in a non-monotone fashion.

Abstract: Attention costs can cause some information to be ignored and decisions to be imperfect. Can we improve the material welfare of a rationally inattentive agent by restricting his information in the first place? In our model, a well-intentioned principal provides information to an agent for whom information is costly to process, but the principal does not internalize this cost. We show that full information is universally optimal if and only if the environment comprises one issue. With multiple issues, attention management becomes optimal: the principal restricts some information to induce the agent to pay attention to other aspects. 

Abstract: This paper studies a repeated lender-borrower game with anonymous re-matching (that is, once an ongoing relationship is terminated, players are rematched with new partners and prior histories are unobservable). We propose an equilibrium refinement based on two assumptions: (a) default implies termination of the current relationship; (b) in a given relationship, a better loan-repayment history implies weakly higher continuation values for both parties. This refinement captures the idea of “justifiable punishments” in repeated games. We show that if agents are patient enough and re-matching is sufficiently likely, then the loan size is strictly increasing over time along the equilibrium path of all non-trivial equilibria. As such, this paper helps explain gradualism in long-term relationships, especially credit relationships. 

Abstract: We study a dynamic contracting problem with multiple agents and a lack of commitment. A principal who can only commit to one-period contracts wants to screen efficient agents over time. Once an agent reveals his type, the principal becomes tempted to revise contract terms, causing a "ratchet effect." Alterations of contracts are observable and, hence, whenever past promises are not honored future information revelation stops. We provide a necessary and sufficient condition under which the principal is able to foster information revelation. When players are sufficiently patient, the agents' private information is either never revealed or fully revealed in a sequential manner. Optimal contracts entail high-powered incentives after an agent's type is initially disclosed, and rewards for information revelation disappear in the long run.

Abstract: We study a continuous-time model of long-run employment relationship with fixed wage and at-will firing; that is, termination of the relationship is non-contractible. Depending on his type, the worker either always works hard, or can freely choose his effort level. The firm does not know the worker’s type and the monitoring is imperfect. We show that, in the unique Markov equilibrium, as the worker’s reputation worsens, his job becomes less secure and the strategic worker works harder. We further demonstrate that the relationship between average productivity and job insecurity is U-shaped, which is consistent with typical findings in the organizational psychology literature.