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Power and the Privilege of Clarity: An Analysis of Bargaining Power and Information Transmission

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Author Info

  • Adrian de Groot Ruiz

    (University of Amsterdam)

  • Theo Offerman

    (University of Amsterdam)

  • Sander Onderstal

    (University of Amsterdam)

Abstract

We provide a game theoretic analysis of how power shapes the clarity of communication. We analyze information transmission in a cheap talk bargaining game between an informed Sender and an uninformed Receiver. Theoretically, we find that the maximum amount of information that can be transmitted in equilibrium is increasing in the bargaining power of the Sender relative to that of the Receiver. Using the ACDC-selection criterion, which selects a unique most-informative equilibrium, we predict that information transmission is increasing in the Sender's relative bargaining power. This prediction is corroborated by an experiment. Finally, we show how partial information transmission can lead to communication failure, and show how and under which conditions a delegation mechanism can solve this problem.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 11-055/1.

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Date of creation: 17 Mar 2011
Date of revision: 31 Oct 2011
Handle: RePEc:dgr:uvatin:20110055

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Web page: http://www.tinbergen.nl

Related research

Keywords: Cheap Talk; Bargaining Power; Information Transmission; Experiment;

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References

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  1. Sobel, Joel, 1985. "A Theory of Credibility," Review of Economic Studies, Wiley Blackwell, vol. 52(4), pages 557-73, October.
  2. Yeon-Koo Che & Navin Karthik, 2007. "Opinions as incentives," Discussion Papers 0708-09, Columbia University, Department of Economics.
  3. Farrell, Joseph & Gibbons, Robert, 1989. "Cheap talk can matter in bargaining," Journal of Economic Theory, Elsevier, vol. 48(1), pages 221-237, June.
  4. J. Farrell, 2010. "Meaning and Credibility in Cheap Talk Games," Levine's Working Paper Archive 533, David K. Levine.
  5. Matthews, Steven A. & Postlewaite, Andrew, 1989. "Pre-play communication in two-person sealed-bid double auctions," Journal of Economic Theory, Elsevier, vol. 48(1), pages 238-263, June.
  6. Blume Andreas & Kim Yong-Gwan & Sobel Joel, 1993. "Evolutionary Stability in Games of Communication," Games and Economic Behavior, Elsevier, vol. 5(4), pages 547-575, October.
  7. Pitchik, Carolyn & Schotter, Andrew, 1987. "Honesty in a Model of Strategic Information Transmission," American Economic Review, American Economic Association, vol. 77(5), pages 1032-36, December.
  8. Jens Høj, 2007. "Competition Law and Policy Indicators for the OECD countries," OECD Economics Department Working Papers 568, OECD Publishing.
  9. M. Rabin, 2010. "Communication Between Rational Agents," Levine's Working Paper Archive 539, David K. Levine.
  10. Matthews, Steven A, 1989. "Veto Threats: Rhetoric in a Bargaining Game," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 347-69, May.
  11. Sobel, Joel, 1993. "Evolutionary stability and efficiency," Economics Letters, Elsevier, vol. 42(2-3), pages 301-312.
  12. Compte, Olivier & Jenny, Frederic & Rey, Patrick, 2002. "Capacity constraints, mergers and collusion," European Economic Review, Elsevier, vol. 46(1), pages 1-29, January.
  13. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-48, June.
  14. Adrian de Groot Ruiz & Theo Offerman & Sander Onderstal, 2011. "An Experimental Study of Credible Deviations and ACDC," Tinbergen Institute Discussion Papers 11-153/1, Tinbergen Institute.
  15. Stefan Voigt, 2006. "The Economic Effects of Competition Policy Cross Country Evidence Using Four New Indicators," ICER Working Papers 20-2006, ICER - International Centre for Economic Research.
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Cited by:
  1. Adrian de Groot Ruiz & Theo Offerman & Sander Onderstal, 2011. "An Experimental Study of Credible Deviations and ACDC," Tinbergen Institute Discussion Papers 11-153/1, Tinbergen Institute.
  2. Adrian de Groot Ruiz & Theo Offerman & Sander Onderstal, 2011. "Equilibrium Selection in Cheap Talk Games: ACDC rocks when Other Criteria remain silent," Tinbergen Institute Discussion Papers 11-037/1, Tinbergen Institute, revised 31 Oct 2011.

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