Cheap Talk With Endogenous Conflict of Interest

Nemanja Antić*, Nicola Persico

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

In a cheap-talk setting where the conflict of interest between sender and receiver is determined endogenously by the choice of parameters θi for each agent i, conditions are provided that determine the sign of each agent's inverse demand for θ without assuming that the most informative equilibrium will necessarily be played in the cheap talk game. For two popular functional forms of payoffs, we derive analytically tractable approximations for agent i's demand for θ. In an application where the θi's are purchased on a competitive market, we provide conditions for a competitive equilibrium to feature maximal information transmission. In a principal–agent application where the agent's θ is set by the principal, our results show that information transmission will be partial. We consider extensions where: (1) the θ's are acquired covertly rather than overtly and (2) the θ's are traded after the sender has received the information.

Original languageEnglish (US)
Pages (from-to)2663-2695
Number of pages33
JournalEconometrica
Volume88
Issue number6
DOIs
StatePublished - Nov 2020

Keywords

  • Cheap talk
  • endogenous bias

ASJC Scopus subject areas

  • Economics and Econometrics

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