Econometrica: May 2022, Volume 90, Issue 3

Test Design under Falsification
p. 1109-1142

Eduardo Perez‐Richet, Vasiliki Skreta

We study the optimal design of tests with manipulable inputs. Tests take a unidimensional state of the world as input and output, an informative signal to guide a receiver's approve or reject decision. The receiver wishes to only approve states that comply with her baseline standard. An agent with a preference for approval can covertly falsify the state of the world at a cost. We characterize receiver‐optimal tests and show they rely on productive falsification by compliant states. They work by setting a more stringent operational standard, and granting noncompliant states a positive approval probability to deter them from falsifying to the standard. We also study how falsification‐detection technologies improve optimal tests. They allow the designer to build an implicit cost of falsification into the test, in the form of signal devaluations. Exploiting this channel requires enriching the signal space.

Full Content

Supplemental Material

Supplement to "Test Design under Falsification"

This appendix contains materials not found within the manuscript.

Read More View PDF