Referral and information acquisition in markets and organizations
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This dissertation studies an economy where efficiency depends on the correct match between projects and two experts. A low-skill expert has low fixed cost and low productivity, so he is more efficient in handling low-potential or low-difficulty projects. And the opposite is true for a high-skill expert. The dissertation studies the effectiveness of markets and organizations in overcoming asymmetric information issues, experts' incentives to acquire project information at a cost, and how experts use the information to facilitate the correct match. The first chapter studies a market where a referring expert privately knows a project's potential and may refer it at any price. Inspection benefits the referred expert. First, it allows him to find out the project's potential before accepting the referral offer. Second, it allows him to tailor production effort to the project's potential for maximum efficiency. In equilibrium, the referring expert pools projects into subsets and refers each subset at a different price. A higher price signals a subset of projects with higher potentials. The referred expert almost always inspects and then uses the information to make the acceptance decision. Each subset must be small enough to incentivize the referral at a price, but also large enough to incentivize inspection by the referred expert. The second chapter studies contract design within an organization. A principal has to rely on the two experts to learn about projects' difficulties. If information cost is small, the principal can implement the first best by an optimal mechanism with the low-skill expert acting as a gatekeeper. The low-skill gatekeeper expert is incentivized to acquire information and report it truthfully. Subsequently, the principal efficiently assigns the project based on the report. The third chapter studies a market where each of the two experts can exert a variable effort to acquire project information imperfectly. In the first best, experts coordinate their information acquisition efforts. In the market, either one or both experts acquire information. The two experts may fail to coordinate because one acquires information for efficient match but the other acquires information again to protect himself.