Communication with partially verifiable endogenous information

Abstract

An expert can covertly acquire information about the state of the world before communicating with a decision maker in order to influence her action. The expert’s information acquisition is unrestricted and costless but her ability to prove to the decision maker what she privately learnt is limited. I study how the verifiability of the expert’s acquired information affects equilibrium information acquisition and transmission. Even when acquired information is only partially verifiable, I prove an unravelling result: all equilibria in which the expert influences the decision maker involve full revelation of the expert’s private information. I then study optimal verifiability environments, giving necessary and sufficient conditions for optimality for each of the two agents. Expert-optimal environments are credibly rich in the sense that, even when facing a sceptical decision maker, the expert has access to a rich language to communicate her information. I show that this is akin to her having a large amount of commitment power. The optimum for the decision maker restricts the expert’s ability to credibly communicate intermediate results, inducing the expert to acquire and disclose full information in equilibrium.