Dynamic Persuasion with Outside Information

Abstract

A principal seeks to persuade an agent to accept an offer of uncertain value before a deadline expires. The principal can generate information, but exerts no control over exogenous outside information. The combined effect of the deadline and outside information creates incentives for the principal to keep uncertainty high in the first periods so as to persuade the agent close to the deadline. We characterize the equilibrium, compare it to the single-player decision problem in which exogenous outside information is the agent’s only source of information, and examine the welfare implications of our analysis. (JEL C73, D82, D83)

Contracting over persistent information

“…This policy is not optimal in Ely and Szydlowski (2020), or in our paper. See Au (2015), Bizzotto, Rüdiger, and Vigier (2021), Che, Kim, and Mierendorff (2023), Henry and Ottaviani (2019), and Smolin (2021) for other papers on information disclosure in quitting games, where the agent either waits and obtains additional information, or takes an irreversible action and stops the game.…”

Slow persuasion

“…Several recent papers study dynamic persuasion models with a fixed state in which the decision maker chooses when to take a game‐ending action (Au (2015), Ely and Szydlowski (2020), Orlov, Skrzypacz, and Zryumov (2020), Bizzotto, Rüdiger, and Vigier (2021), Smolin (2021), Che, Kim, and Mierendorff (2021)). Our decision maker instead selects freely among her actions in each period.…”

Paying with information

“…Gradual learning has been identified as equilibrium outcomes in other contexts modeled as dynamic information design problems. For instance, Ely and Szydlowski (2020), Orlov, Skrzypacz, and Zryumov (2020), and Bizzotto, Rudiger, and Vigier (2021) demonstrate that slowing down information release is a valuable tool to delay an agent's irreversible action, such as quitting. Relative to this literature, this paper introduces two novel considerations: The first is the role of information control when incentivizing the agent on the (reversible) work/shirk margin in addition to the (irreversible) quit/participate margin, thereby incorporating the two classical constraints of principal–agent models of employment relationships.…”