A privately-informed applicant seeks approval for a proposal from a receiver who only values good ideas. Examining the proposal could uncover hard evidence about the idea's quality. Without hard evidence, giving the benefit of the doubt salvages good ideas but also prompts obfuscation (documented in many settings, e.g., grants), reducing allocative efficiency and investment in specialized knowledge. More examination resources or higher applicants' private returns increase investment but reduce allocative efficiency (more obfuscation). Less productive or costlier specialized knowledge decreases obfuscation, but a reduction in "low-hanging fruit" has an ambiguous effect. Lastly, introducing competition among applicants reduces obfuscation.
|Original language||English (US)|
|State||Published - May 6 2021|
- strategic communication
- decision making