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Cheap Talk With Endogenous Conflict of Interest

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  • Nemanja Antić
  • Nicola Persico

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.

Suggested Citation

  • Nemanja Antić & Nicola Persico, 2020. "Cheap Talk With Endogenous Conflict of Interest," Econometrica, Econometric Society, vol. 88(6), pages 2663-2695, November.
    • Handle: RePEc:wly:emetrp:v:88:y:2020:i:6:p:2663-2695
    DOI: 10.3982/ECTA14953
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    References listed on IDEAS

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    1. Kohei Kawamura, 2015. "Confidence and competence in communication," Theory and Decision, Springer, vol. 78(2), pages 233-259, February.
    2. Alonso, Ricardo, 2009. "Strategic control and strategic communication," LSE Research Online Documents on Economics 58682, London School of Economics and Political Science, LSE Library.
    3. Andres Almazan & Sanjay Banerji & Adolfo De Motta, 2008. "Attracting Attention: Cheap Managerial Talk and Costly Market Monitoring," Journal of Finance, American Finance Association, vol. 63(3), pages 1399-1436, June.
    4. Fenghua Song & Anjan V. Thakor, 2006. "Information Control, Career Concerns, and Corporate Governance," Journal of Finance, American Finance Association, vol. 61(4), pages 1845-1896, August.
    5. Heikki Rantakari, 0. "Managerial Influence and Organizational Performance," Journal of the European Economic Association, European Economic Association, vol. 19(2), pages 1116-1161.
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    Cited by:

    1. Antić, Nemanja & Persico, Nicola, 2023. "Equilibrium selection through forward induction in cheap talk games," Games and Economic Behavior, Elsevier, vol. 138(C), pages 299-310.

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