Costly Verification in Collective Decisions

TL;DR

This paper analyzes how a principal can optimally decide between implementing a new policy or maintaining the status quo when agents hold private information, using costly verification and a voting mechanism.

Contribution

It introduces a novel mechanism combining voting and costly verification to maximize the principal's expected utility in decision-making.

Findings

Optimal mechanism is a cardinal voting rule with verification.

Agents' claims are weighted more heavily than baseline votes.

Verification occurs only when claims are decisive.

Abstract

We study how a principal should optimally choose between implementing a new policy and maintaining the status quo when information relevant for the decision is privately held by agents. Agents are strategic in revealing their information; the principal cannot use monetary transfers to elicit this information, but can verify an agent's claim at a cost. We characterize the mechanism that maximizes the expected utility of the principal. This mechanism can be implemented as a cardinal voting rule, in which agents can either cast a baseline vote, indicating only whether they are in favor of the new policy, or they make specific claims about their type. The principal gives more weight to specific claims and verifies a claim whenever it is decisive.