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Persuasion, Spillovers, and Government Interventions

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  • Li, Cheng
  • Xiao, Yancheng

Abstract

We develop a model of Bayesian persuasion with spillovers to investigate the impact of information production on optimal policy design. A sender produces information to persuade a receiver to take an action with external effects, and the government implements corrective subsidies and taxes to maximize social welfare. Subsidies to the sender’s preferred action incentivize her to produce less information, while taxes motivating her to produce more. Such an informational effect impacts the receiver’s decision and social welfare. We show that the optimal corrective subsidies and taxes may be different from the Pigouvian level. Most notably, the optimal policy is no government intervention when the spillover is positive and small.

Suggested Citation

  • Li, Cheng & Xiao, Yancheng, 2020. "Persuasion, Spillovers, and Government Interventions," MPRA Paper 103500, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:103500
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    File URL: https://mpra.ub.uni-muenchen.de/103500/1/MPRA_paper_103500.pdf
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    References listed on IDEAS

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    1. Fell, Harrison & Kaffine, Daniel T., 2014. "Can decentralized planning really achieve first-best in the presence of environmental spillovers?," Journal of Environmental Economics and Management, Elsevier, vol. 68(1), pages 46-53.
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    5. Cotton, Christopher, 2012. "Pay-to-play politics: Informational lobbying and contribution limits when money buys access," Journal of Public Economics, Elsevier, vol. 96(3), pages 369-386.
    6. Cheng Li, 2020. "Centralized policymaking and informational lobbying," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 54(4), pages 527-557, April.
    7. Bordignon, Massimo & Colombo, Luca & Galmarini, Umberto, 2008. "Fiscal federalism and lobbying," Journal of Public Economics, Elsevier, vol. 92(12), pages 2288-2301, December.
    8. Besley, Timothy & Coate, Stephen, 2003. "Centralized versus decentralized provision of local public goods: a political economy approach," Journal of Public Economics, Elsevier, vol. 87(12), pages 2611-2637, December.
    9. Varian, Hal R, 1994. "A Solution to the Problem of Externalities When Agents Are Well-Informed," American Economic Review, American Economic Association, vol. 84(5), pages 1278-1293, December.
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    Cited by:

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    More about this item

    Keywords

    persuasion; spillover effects; externalities; Pigouvian taxes; subsidies; social welfare;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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