Reputational Concern with Endogenous Information Acquisition

We develop a reputational cheap talk model to characterize the essential activities of an expert: information acquisition and information transmission. The decision maker, who has the authority to take actions, is in lack of relevant information and is uncertain about the expert’s preference. The expert, who acquires and conveys information, may be biased that he is in favor of a particular action, or may be aligned that he cares about the decision maker’s payo¤ and has reputational concern. Our main insight shows that an aligned expert’s reputational concern may have a non-monotonic e¤ect on his information acquisition incentive: he acquires better information if and only if his reputational concern is moderate. Another main insight describes that the possible existence of biased experts may actually increase the decision maker’s payo¤ and social surplus, which di¤ers from Stephen Morris (2001), Ely and Valimaki (2003) and Ely, Fudenberg and Levine (2008) substantially. Regarding delegation, unlike the result in Aghion and Tirole (1997), we show that delegation may reduce the aligned expert’s information acquisition incentive. Finally, our analysis illustrates that the decision maker prefers communication to delegation whenever informative communication is feasible, which is opposite to Wouter Dessein (2002). I’m indebted to my advisor, David Levine, for his coutinuous guidance and encouragement. I thank Marcus Berliant, Philip Dybvig, Stephanie Lau, John Nachbar, Maher Said and seminar participants in WUSTL for their valuable comments. I also want to acknowledge the support from Center for Research in Economics and Strategy (CRES), in the Olin Business School, Washington University in St. Louis. All errors are mine. Department of Economics, Washington University in Saint Louis, MO, USA, 63130. E-mail: [email protected].