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Cheap talk with an exit option: a model of exit and voice

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  • Takashi Shimizu

    (Kobe University)

Abstract

The paper presents a formal model of the exit and voice framework proposed by Hirschman (Exit, voice, and loyalty: responses to decline in firms, organizations, and states. Harvard University Press, Cambridge, 1970). More specifically, we modify Crawford and Sobel’s (Econometrica 50(6):1431–1451, 1982) cheap talk model such that the sender of a cheap talk message has an exit option. We demonstrate that the presence of the exit option may increase the informativeness of cheap talk and improve welfare if the exit option is relatively attractive to the sender and relatively unattractive to the receiver. Moreover, it is verified that perfect information transmission can be approximated in the limit. The results suggest that the exit reinforces the voice in that the credibility of exit increases the informativeness of the voice.

Suggested Citation

  • Takashi Shimizu, 2017. "Cheap talk with an exit option: a model of exit and voice," International Journal of Game Theory, Springer;Game Theory Society, vol. 46(4), pages 1071-1088, November.
    • Handle: RePEc:spr:jogath:v:46:y:2017:i:4:d:10.1007_s00182-017-0571-0
    DOI: 10.1007/s00182-017-0571-0
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    Cited by:

    1. Françoise Forges & Jérôme Renault, 2021. "Strategic information transmission with sender’s approval," International Journal of Game Theory, Springer;Game Theory Society, vol. 50(2), pages 475-502, June.
    2. Sémirat, Stéphan & Forges, Françoise, 2022. "Strategic information transmission with sender's approval: The single-crossing case," Games and Economic Behavior, Elsevier, vol. 134(C), pages 242-263.
    3. Françoise Forges & Jérôme Renault, 2020. "Strategic information transmission with sender's approval," Working Papers hal-02440627, HAL.
    4. Saori CHIBA & Kaiwen LEONG, 2018. "Information Aggregation and Countervailing Biases in Organizations," Discussion papers e-18-007, Graduate School of Economics , Kyoto University.

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    More about this item

    Keywords

    Exit; Voice; Cheap talk; Informativeness; Credibility;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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