Information Design for Congested Social Services : Optimal Need-Based Persuasion

We study the effectiveness of information design in reducing congestion in social services catering to users with varied levels of need. In the absence of price discrimination and centralized admission, the provider relieson sharing information about wait times to improve welfare. We consider a stylized model with heterogeneoususers who differ in their private outside options: low-need users have an acceptable outside option to thesocial service, whereas high-need users have no viable outside option. Upon arrival, a user decides to wait forthe service by joining an unobservable first-come-first-serve queue, or leave and seek her outside option. Toreduce congestion and improve social outcomes, the service provider seeks to persuade more low-need users toavail their outside option, and thus better serve high-need users. We characterize the Pareto-optimal signalingmechanisms and compare their welfare outcomes against several benchmarks. We show that if either type isthe overwhelming majority of the population, information design does not provide improvement over sharingfull information or no information. On the other hand, when the population is sufficiently heterogeneous,information design not only Pareto dominates full-information and no-information mechanisms, in someregimes it also achieves the same welfare as the “first-best”, i.e., the Pareto-optimal centralized admissionpolicy with knowledge of users’ types