Paying and Persuading

Abstract: I study the joint design of information and transfers when an informed Sender can motivate Receiver by both paying and (Bayesian) persuading. I introduce a generalized concavification method to characterize Sender's value function when they can flexibly influence Receiver incentives directly. This characterization implies empirically verifiable conditions under which Sender strictly prefers access to the joint design of information and transfers. When Sender and Receiver interact repeatedly, Sender pays Receiver only when informational incentives are exhausted, highlighting a stark substitution effect between payments and persuasion as dynamic incentive tools. I conclude by discussing implications of my results for project selection in organizations, pricing for advertisements, and rideshare design.