Information Flow Design and Asymptotic Efficiency

This paper studies an allocation problem in which a welfare-maximizing planner needs to allocate two objects to two agents who are initially uninformed of their valuations of the objects. The planner controls both the in- formation accessible to the agents and the process by which it is revealed. By strategically designing the information flow, the planner can manipulate the evolution of private information to facilitate sequential screening. The main result of the paper shows that the planner can asymptotically achieve allocative efficiency through a two-stage disclosure rule. The signal in the initial stage provides agents information about the strength of their relative preferences without revealing the objects they value more. Second stage signal then reveals this information to agents after they report their initial signals. To maintain incentive compatibility, initial stage signals are tailored so that they do not dominate each other in terms of relative preference intensity they indicate for the favored object to be revealed. That is, if a signal indicates a stronger preference for one object when this object turns to be more valuable, it will also indicate a weaker preference for the other object when it becomes more valuable in the second stage