Journal
AMERICAN ECONOMIC REVIEW
Volume 109, Issue 3, Pages 911-955Publisher
AMER ECONOMIC ASSOC
DOI: 10.1257/aer.20171919
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Funding
- European Union Seventh Framework Programme (FP7/2007-2013) under ERC [295835]
- European Research Council (ERC) [295835] Funding Source: European Research Council (ERC)
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An informer sequentially collects and disseminates information through costly research to persuade an evaluator to approve an activity. Payoffs and control rights are split between informer and evaluator depending on the organizational rules governing the approval process. The welfare benchmark corresponds to Wald's classic solution for a statistician with payoff equal to the sum of informer and evaluator. Organizations with different commitment power of informer and evaluator are compared from a positive and normative perspective. Granting authority to the informer is socially optimal when information acquisition is sufficiently costly. The analysis is applied to the regulatory process for drug approval.
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