Sanjari Kalantri

I analyse a dynamic model of persuasion in which a long-lived sender provides information about an evolving state to a sequence of short-lived receivers who make binary decisions in the presence of intertemporal externalities. I allow for conflicts of interest between the sender and receivers, both in the stage-game and via the dynamics of the externalities. I characterize the optimal persuasion for a variety of parametric cases, depending on the strength and direction of the externalities. The most interesting results relate to the case in which the sender is biased towards an action in the stage game, whose externalities make it harder to persuade future decision-makers to take the same action. In this case, when there are extremely strong externalities, there could be a complete reversal of the sender's disclosure policy compared to the stage-game.

I analyse a dynamic cheap-talk model in which a long-lived sender provides information about an evolving state to a sequence of short-lived receivers making binary decisions. States evolve endogenously based on the action taken by the receiver. I also assume that there are no conflicts of interest between the sender and the receivers in the stage-game. While a non-informative equilibrium always exists, full revelation is an equilibrium in the stage-game too. I then characterize the equilibria in the dynamic game, depending on the strength and direction of the externalities. In the dynamic game, under moderate externalities, partially revealing equilibria may exist, but the non-informative equilibrium is the unique equilibrium when the externalities are too strong.

In standard principal-agent models, a risk-neutral principal designs a wage schedule as a function of output (which is observable) to incentivise a risk-averse agent to exert high effort (which is unobservable). In our setup, the agent has Yaari preferences, i.e., she applies a probability distortion function to the output probabilities, rather than a utility function to the wages. In the binary action case, we show that simple bonus contracts are optimal. We also do comparative statics with respect to various parameters: the minimum wage, agent's reservation wage, degree of risk aversion of the agent, and the informativeness of the signal (output).