The optimal choice of pre-launch reviewer: how best to transmit information using tests and conditional pricing
The optimal choice of pre-launch reviewer: how best to transmit information using tests and conditional pricing
We evaluate the use of public tests of varying toughness by a principal who wants to convince agents that she is worth endorsing. Counter-intuitively, we find that extreme types of test are optimal when the principal can condition prices on the test result. The toughest test maximizes the impact of a pass, the softest test maximizes the probability of passing, while the precision of agents’ private information determines which test is best. Applications abound, for example in industrial organization (firm and consumers), labor economics (job applicant and employers), political economy (politician and voters) and elsewhere.
tests, public test, test toughness, test decision, product launch, endorsements, reviewers, certification, bayesian learning, information transmission, information, bias, marketing, monopoly, pricing
Gill, David
2319117f-b14e-48c6-8a33-34f5c9d4e2ea
Sgroi, Daniel
56178598-890e-4fe1-8b83-e518f03345c9
7 May 2009
Gill, David
2319117f-b14e-48c6-8a33-34f5c9d4e2ea
Sgroi, Daniel
56178598-890e-4fe1-8b83-e518f03345c9
Gill, David and Sgroi, Daniel
(2009)
The optimal choice of pre-launch reviewer: how best to transmit information using tests and conditional pricing
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Monograph
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Abstract
We evaluate the use of public tests of varying toughness by a principal who wants to convince agents that she is worth endorsing. Counter-intuitively, we find that extreme types of test are optimal when the principal can condition prices on the test result. The toughest test maximizes the impact of a pass, the softest test maximizes the probability of passing, while the precision of agents’ private information determines which test is best. Applications abound, for example in industrial organization (firm and consumers), labor economics (job applicant and employers), political economy (politician and voters) and elsewhere.
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Published date: 7 May 2009
Keywords:
tests, public test, test toughness, test decision, product launch, endorsements, reviewers, certification, bayesian learning, information transmission, information, bias, marketing, monopoly, pricing
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Local EPrints ID: 150149
URI: http://eprints.soton.ac.uk/id/eprint/150149
PURE UUID: 75dcfad2-c649-4423-bdeb-0c01b113e04f
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Date deposited: 05 May 2010 08:30
Last modified: 10 Dec 2021 17:57
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Contributors
Author:
David Gill
Author:
Daniel Sgroi
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