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Communication in Settings with No. Transfers

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  • Nahum D. Melumad
  • Toshiyuki Shibano
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    Abstract

    Consider a setting commonly found in intrafirm, regulatory, and political relationships wherein an uninformed decision maker, attempting to elicit information from an informed party affected by his decision, is unable to use transfers. This article examines whether both parties will agree on the introduction of communication-based organizational structures; results in prior research suggest they will. In contrast we demonstrate that when there is enough disagreement between the two parties, introducing communication benefits the decision maker but leads to a loss for the informed party. This result holds both when the decision maker can commit to a decision rule (as in Holmstom (1977)) and when he cannot (as in Crawford and Sobel (1982)). We also show that in the commitment case, with enough disagreement, the optimal communication-based decision rule is discontinuous. Our results suggest a possible rationale for observed legal and regulatory limitations on the information decision makers can elicit from other parties, as well as for attempts by various parties to avoid preplay communication.

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    Bibliographic Info

    Article provided by The RAND Corporation in its journal RAND Journal of Economics.

    Volume (Year): 22 (1991)
    Issue (Month): 2 (Summer)
    Pages: 173-198

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    Handle: RePEc:rje:randje:v:22:y:1991:i:summer:p:173-198

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    Cited by:
    1. Liang, Pinghan, 2013. "Optimal delegation via a strategic intermediary," MPRA Paper 45271, University Library of Munich, Germany.
    2. Semenov, Aggey, 2012. "Delegation to potentially uninformed agent," MPRA Paper 42080, University Library of Munich, Germany.
    3. Kolotilin, Anton & Li, Hao & Li, Wei, 2013. "Optimal limited authority for principal," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2344-2382.
    4. Zapechelnyuk, Andriy, 2013. "Eliciting information from a committee," Journal of Economic Theory, Elsevier, vol. 148(5), pages 2049-2067.
    5. Kohei Kawamura (University of Edinburgh), 2013. "Confidence and Competence in Communication," ESE Discussion Papers 222, Edinburgh School of Economics, University of Edinburgh.
    6. Irene Valsecchi, 2013. "The expert problem: a survey," Economics of Governance, Springer, vol. 14(4), pages 303-331, November.
    7. Baron, David P. & Meirowitz, Adam, 2001. "Relations between Fully-Revealing Equilibria of Multiple-Sender Signaling and Screening Models," Research Papers 1711, Stanford University, Graduate School of Business.
    8. McGee, Andrew & Yang, Huanxing, 2013. "Cheap talk with two senders and complementary information," Games and Economic Behavior, Elsevier, vol. 79(C), pages 181-191.
    9. Kohei Kawamura, 2008. "Inequality, Happiness and Relative Concerns: What Actually is their Relationship?," ESE Discussion Papers 182, Edinburgh School of Economics, University of Edinburgh.
    10. Salvatore Piccolo & Giovanni W. Puopolo & Luis Vasconcelos, 2013. "Non-Exclusive Financial Advice," CSEF Working Papers 347, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    11. Marino, Anthony M., 2006. "Delegation versus an approval process and the demand for talent," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 487-503, May.
    12. Liang, Pinghan, 2013. "Optimal delegation via a strategic intermediary," Games and Economic Behavior, Elsevier, vol. 82(C), pages 15-30.
    13. Baldenius, Tim & Melumad, Nahum & Meng, Xiaojing, 2014. "Board composition and CEO power," Journal of Financial Economics, Elsevier, vol. 112(1), pages 53-68.
    14. Kohei Kawamura, 2007. "Constrained Communication with Multiple Agents: Anonymity, Equal Treatment, and Public Good Provision," ESE Discussion Papers 166, Edinburgh School of Economics, University of Edinburgh.
    15. Kohei Kawamura, 2006. "Anonymity, Equal Treatment, and Overconfidence: Constraints on Communication May Enhance Information Transmission," Economics Series Working Papers 268, University of Oxford, Department of Economics.
    16. Lai, Ernest K. & Lim, Wooyoung, 2012. "Authority and communication in the laboratory," Games and Economic Behavior, Elsevier, vol. 74(2), pages 541-560.
    17. Ambrus, Attila & Azevedo, Eduardo M. & Kamada, Yuichiro & Takagi, Yuki, 2013. "Legislative committees as information intermediaries: A unified theory of committee selection and amendment rules," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 103-115.

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