On the (Mis-)Use of Information for Public Debate Andrea Patacconi University of Oxford Fourth PhD Presentation Meeting, 17 th -18 th January 2008

MAIN INGREDIENTS OF THE MODEL 1.The preferences of the agent (the government) and those of the principal (the public) are not perfectly aligned 2.The government wants to be perceived as taking the ‘right’ decision by the public 3.The process of information gathering and evaluation can be manipulated by the government  The government receives a report from a government agency  Independent agency  Nonindependent agency 4. Manipulation leads to a loss of useful information

RESEARCH QUESTIONS How should political institutions be designed when information can be manipulated?  Should the content of the report be made public?  Should the government agency be made independent? Applications: Freedom of Information Laws Performance Targets and Official Statistics Intelligence Failures

KEY FINDINGS  If the agency is nonindependent, the choice between transparency and secrecy involves a trade-off between greater accountability (under transparency) and better quality information (under secrecy)  If agency can be made independent 1.transparency is always optimal 2.it can be socially optimal not to grant independence to the gov’t agency  Intuition for 2: (i) biased information hurts the public but (ii) for given information, manipulations make the gov’t more reluctant to implement its a priori favoured policy

THE MODEL Two players: Government and the Public Two policies {w,n}, two states of the world {W,N} Government picks the policy Public decides whether or not to support the government (e.g., election) Public wants the gov't to take the ‘right’ decision

PREFERENCES The public The public supports the government if it implements the policy that, given the available information, citizens believe is the right one The Government wants to get the decision right (a legacy concern) is disposed toward one policy (w): Private benefit B cares about public opinion: Electoral concerns E

INFORMATION STRUCTURE 2 signals, s i ∈ {α, Ø} i = 1,2 (4 possible signal realizations) Genuine signals s G are informative: Pr(s G = α ∣ W) = Pr(s G = Ø ∣ N) = θ >1/2 (α, α): the evidence supports implementation (α, Ø) or (Ø, α): the evidence is mixed (Ø, Ø): the evidence does not support implementation

MANIPULATION OF INFORMATION Genuine signals s G are different from observed signals s q Pr(s q = α ∣ s G = Ø) = q Pr(s q = Ø ∣ s G = α) = 0 q ∈ [0,1] measures the size of the bias in information (asymmetric vetting) Genuine signals are unobservable (unless q = 0): loss of information If agency is nonindependent, q is chosen by the government If the agency is independent, q = 0

TIMING 1.If the agency is nonindependent, the gov’t picks the optimal bias in information q ≥ 0. If the agency is independent, q = 0 2.Gov't receives a (possibly biased) report by the agency 3.The content of the report is either truthfully disclosed or kept secret 4.Gov't selects a policy 5.The public observes the policy and any disclosed info and then decides whether or not to support the gov't 6.Payoffs accrue

FOUR POSSIBLE CONSTITITIONS Goal: to compare citizen welfare across constitutions TransparencySecrecy Nonindependent agency (T, q*)(S, q*) Independent agency (T, q=0)(S, q=0)

TRANSPARENCY & NONINDEPENDENT AGENCY (q OBSERVABLE) Remark: Never optimal for the government to manipulate the information so much that the public never supports implementation (eqm bias ≤ q max ) Proposition 1. 1.If B – E is small, for any signal realization the government picks the policy that the citizens support. However the bias q might be positive 2.If B – E is large, then either i) The size of the bias is zero but the gov’t implements the project when the evidence is mixed ii) Or the size of the bias is positive but the gov’t does not implement the project when the evidence is mixed

EXAMPLE: THE GOVERMENT PAYOFF (CASE 2.ii )

EXAMPLE CONT’ED: CITIZEN WELFARE

INDEPENDENT VS. NONINDEPENDENT AGENCY (under transparency) Proposition 2. In the full disclosure scenario, a commitment not to manipulate the information can hurt the public when electoral concerns are weak  Novel rationale for political control of government agencies  Effect only present when electoral concerns are weak (e.g., young democracies) Proposition 3. The results when q is unobservable are qualitatively similar (However, PSNE no longer exist when conflict of interest is large) TransparencySecrecy Nonindependent agency (T, q*)(S, q*) Independent agency (T, q=0)(S, q=0)

SECRECY  Secrecy is modelled as a commitment not to disclose any information  q unobservable  Public can observe the government policy Proposition 4. For any belief that the public may hold, it is optimal for the government to set q = 0 Proposition 5. Suppose the agency is nonindependent. Then the choice between transparency and secrecy involves a trade-off between greater accountability (under transparency) and better quality information (under secrecy)

OPTIMAL CONSTITITIONS For any given q, transparency benefits the public by making the gov’t more accountable: (T, q = 0) ≽ (S, q = 0) = (S, q*) Proposition 6. 1.Transparency is always a feature of an optimal constitution 2.An optimal constitution may or may not require an independent agency: (T, q = 0) ⋛ (T, q*) TransparencySecrecy Nonindependent agency (T, q*)(S, q*) Independent agency (T, q=0)(S, q=0)

SUMMARY OF RESULTS Simple political economy model of manipulation of information. Key questions:  Should the content of the report be made public?  If agency is nonindependent, tradeoff between manipulation of information and discipline  If agency can be made independent, transparency is always optimal  Should the government agency be made independent?  Biased info hurts the public  For given info, manipulations make the gov’t more reluctant to implement its a priori favored policy  Novel rationale for the optimality of nonindependent agencies  Extension: Equilibrium when disclosure is voluntary is payoff equivalent to the one under full disclosure (info is hard in this model)