Disclosure and Dissuasion

Abstract

What can a social planner do to help decision makers when relevant information is held by biased parties? I consider a second-best policy of simple taxes to change the decision maker's preferences when a mandatory disclosure policy is not available to the social planner. Changing a decision maker's preferences induces di erent persuasion from informed but biased parties. I develop a model to show how these taxes can achieve enough information revelation to implement the e cient decision, and then extend it to the applications of sales and grading standards.