American Economic Journal: Microeconomics
no. 1, February 2023
We develop a model in which two players sequentially and publicly examine a project. In our model the player who moves first can fabricate evidence to influence the second mover, which creates a moral hazard problem. We find that early strategic uncertainty can mitigate this problem. In particular, for intermediate prior beliefs about the project's quality, the Pareto-dominant equilibrium is in mixed strategies and consists of an early stage in which evidence may be fabricated and a later stage in which evidence is always authentic. Our findings shed light on the dynamics of R&D, quality assurance, and drug approval.
Antler, Yair, Daniel Bird, and Santiago Oliveros.
American Economic Journal: Microeconomics,
Asymmetric and Private Information; Mechanism Design
Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
Information and Product Quality; Standardization and Compatibility