Nelson Hall 3220

Francis de Vericourt is Professor of Management Science at the European School of Management and Technology (ESMT) in Berlin. Prior to ESMT, Francis was on the faculty of the Fuqua School of Business and INSEAD.

Discussion Abstract

The World Health Organization seeks effective ways to alert its member states about global pandemics. Motivated by this challenge, we study a public agency’s problem of designing warning policies to mitigate potential disasters that occur with advance notice. The agency privately receives early information about recurring harmful events and issues warnings to induce an uninformed stakeholder to take costly preemptive actions. The agency’s decision about whether to issue a warning critically depends on its credibility, which we define as the uninformed party’s belief regarding the accuracy of the agency’s information. This belief is updated over time by comparing the agency’s warnings with the actual incidence of harmful events. The agency, therefore, faces a trade-off between eliciting a proper response today and maintaining its credibility in order to elicit responses to future adverse events.