Finance - Accounting Seminars

 

 

Truth-telling is essential to efficient allocation of resources but is often undermined by strategic misreporting. We show how verifiably fair randomness, complemented by other blockchain functionalities, can lead to truth-telling at the cost of introduction of random noise in information transmission. The optimal trade-off between truthfulness and precision yields equilibria that outperform those attainable without randomization in information transmission. We characterize two classes of information equilibria: information designated to directly trigger value transfer via decentralized consensus (“enforcive information”), and strategic information sharing between Bayesian-rational decision makers (“advisive information”). Our findings demonstrate usefulness of randomized transmission in broad financial settings and illustrate the benefits of blockchain technology for optimal mechanism design.

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