Hersh Chopra

This paper develops a theory of employer competition over \textit{hiring standards} in labor markets where employers rely on third-party certification to screen applicants. A revenue-maximizing certifier sells tests to an applicant, who possesses imperfect private information about his ability and seeks to persuade employers to offer him employment. The certifier faces a joint screening and information design problem in designing a test allocation. The distortions from screening reduce the overall informativeness of the test allocation, steering the applicant supply towards less selective employers. This incentivizes the more selective employers to lower their standards, intensifying employer competition.

We study the design of mechanisms by an intermediary that generates information for a sender to persuade a receiver about an unknown attribute of the sender. The sender is initially privately, but imperfectly, informed about her attribute, and the receiver takes an action based on posterior beliefs about the sender’s attribute and the sender’s belief about the attribute. The mechanism generates information for the sender and also controls its disclosure to the receiver. The design of the optimal mechanism needs to screen the privately informed sender and thus confronts incentive-compatibility constraints. The mechanism also deals with obedience constraints, as the intermediary must generate just enough information to persuade the receiver. We characterize incentive-compatible mechanisms for a wide class of problems when the sender contracts with the intermediary. We use this characterization to study profit-maximizing mechanisms in three applications: the design of college-admissions tests, the optimal use of consumer data on a digital market platform, and the optimal design of credit rating schemes.

We study efficient and consumer-surplus maximizing information policies in a bilateral trade setting where the buyer is initially privately imperfectly informed about his willingness to pay. We identify a canonical class of demand functions that can be implemented by information disclosures that are targeted based on the buyer’s initial private information. As an application we show that providing more information to the buyer can lead to higher market prices and a lower trade probability without affecting the consumer or producer surplus.

A sender with private information (high or low ability) tries to convince a receiver of having higher ability. A certifier offers a menu of (blackwell) experiments and prices to screen the sender. The sender uses the experiment’s outcome to persuade the receiver to take a favorable action. This paper focuses on the equilibrium interaction in this certification game when the receiver can distinguish between outcomes of the experiment based on the hard information contained in the outcome. With binary ability, for a given experiment, the hard information of an outcome is the likelihood ratio of that outcome. The main result characterizes all possible equilibrium outcomes in terms of a convex combination of menus containing only simple experiments. Using this characterization, I show the existence of an equilibrium in which soft information overrules hard information; due to equilibrium self-selection of the sender, some outcomes whose hard information makes the receiver more pessimistic about the sender's ability end up persuading the receiver to choose the favorable action.

In this note, I describe how information can act both as a substitute and a complement when a decision maker anticipates receiving more information in the future.