Essays on Screening in Information Markets

Abstract

In three essays, this dissertation studies the production and distribution of information

goods. In the first chapter, we model information as a digital good.

Digital goods are produced along a quality ranking and can be both duplicated and

damaged at zero marginal cost. Consumers’ valuation of quality consists of a common

decreasing returns component and an heterogeneous component that gives sellers a

motive for screening. The monopolist problem is naturally divided into an acquisition

and a distribution stage; two interdependent sources of inefficiency, underprovision

and quality damaging, emerge. Competition is modeled as a two stage game of perfect

information. Welfare comparisons between monopoly and duopoly are ambiguous:

additional underacquisition and double spending favor the former, undoing damaging

inefficiencies by distributing a positive quality for free favors the latter.

The second chapter studies the production of socially relevant information: we

model policymaking as a bandit problem where the arms are treatment incentive

schemes whose payoff value and correlation is disciplined by an economic theory. We

preliminarily associate each multiarmed bandit problem to an uncertainty function so

that the implied information function is traded-off one for one with expected utility at

each belief state to determine the optimal policy. The uncertainty measure quantifies

the estimation content of selection mechanisms. We propose a sampling procedure

that validly implements all BDM mechanisms while minimizing the variance of the

empirical propensity score and preserving information continuity. Fully voluntary

mechanisms are control optimal under linear preferences, but their valid implementation

induces the largest variance of the sample size used for estimation.

In the third chapter (with Franz Ostrizek) we study a monopolist screening problem

with network externalities in consumption and two dimensions of heterogeneity:

consumer differ in their susceptibility and influence (to the network effect). We show

that the allocation is inefficient if and only if susceptibility is unobservable, while

consumers receive rents for their influence only if susceptibility is unobserved and

influence is verifiable. The optimal allocation under private information satisfies

lexicographic monotonicity; bunching arises around the switching types in the lexicographic

order, i.e. highest-influence types adjacent to the next level of susceptibility.