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Optimal Contracts When the Players Think Different
SSRN
Self-enforcing contracts with persistence
In: Journal of Monetary Economics, Volume 128, p. 72-87
Self-Enforcing Contracts with Persistence
In: CEPR Discussion Paper No. DP16888
SSRN
Social Connectivity, Media Bias, and Correlation Neglect*
In: The economic journal: the journal of the Royal Economic Society
ISSN: 1468-0297
Abstract
A biased newspaper aims to persuade voters to vote for the government. Voters are uncertain about the government's competence. Each voter receives the newspaper's report as well as independent private signals about the competence. Voters then exchange messages containing this information on social media and form posterior beliefs, neglecting correlation among messages. We show that greater social connectivity increases the probability of an efficient voting outcome if the prior favours the government; otherwise, efficiency decreases. The probability of an efficient outcome remains strictly below one even when connectivity becomes large, implying a failure of the Condorcet jury theorem.
Social Connectivity, Media Bias, and Correlation Neglect
A biased newspaper aims to persuade voters to vote for the government. Voters are uncertain about the government's competence. Each voter receives the newspaper's report as well as independent private signals about the competence. Voters then exchange messages containing this information on social media and form posterior beliefs, neglecting correlation among messages. We show that greater social connectivity increases the probability of an efficient voting outcome if the prior favours the government; otherwise, efficiency decreases. The probability of an efficient outcome remains strictly below one even when connectivity becomes large, implying a failure of the Condorcet jury theorem. ; We gratefully acknowledge support from the Ministerio de Economia y Competitividad (Spain) through grants ECO2014-55953-P, ECO2017-86261-P, MDM 2014-0431, ECO2016-78632-P, and PGC2018-098510-B-I00. Many special thanks are due to La China Mandarina in Madrid and its staff for providing an inspiring environment.
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