Essays in information economics

Abstract

This dissertation contains two independent papers. The first chapter "Coarse Information Design", joint with Qianjun Lyu and Wing Suen, studies an information design problem with continuous state and discrete signal space. Under convex value functions, the optimal information structure is interval-partitional and exhibits a dual expectations property: each induced signal is the conditional mean (taken under the prior density) of each interval; each interval cutoff is the conditional mean (taken under the value function curvature) of the interval formed by neighboring signals. This property enables examination into which part of the state space is more finely partitioned and facilitates comparative statics analysis. The analysis can be extended to general value functions and adapted to study more general design problems with finite constraints on allocation rule. In the second chapter "Consumers’ Trust in Multi-attribute Experience-good Seller", joint with Yuk-fai Fong, Ting Liu and Xiaoxuan Meng, a monopolist sells experience goods with observable and experience attributes. The attributes are termed complements (substitutes) if increasing one attribute raises (lowers) the marginal value of the other. The equilibrium observable attribute increases (decreases) in the seller’s discount factor when the two attributes are complements(substitutes). For products with both experience attributes, turning one of them observable can lower the remaining experience attribute and the profit. Committing to myopically sub-optimal levels on the observable attribute can promote consumers’ trust and raise the profit. Our theory also suggests that an exogenously imposed minimum quality standard can undermine trust building when attributes are substitutes.