We augment the standard Crawford-Sobel (Econometrica 1982) model of cheap talk communication by allowing the informed party to use both costless and costly messages. The issues on which we focus are the consequences for cheap talk signaling of the option to use a costly signal ("burned money"); the circumstances under which both cheap talk and burned money are used to signal information; and the extent to which burning money is the preferred instrument for information transmission.
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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number
1245.
Length: Date of creation: Nov 1998 Date of revision: Handle: RePEc:nwu:cmsems:1245
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Farrell, Joseph & Gibbons, Robert, 1989.
"Cheap Talk with Two Audiences,"
American Economic Review,
American Economic Association, vol. 79(5), pages 1214-23, December.
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Matthews, Steven A. & Okuno-Fujiwara, Masahiro & Postlewaite, Andrew, 1991.
"Refining cheap-talk equilibria,"
Journal of Economic Theory,
Elsevier, vol. 55(2), pages 247-273, December.
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Steven A. Matthews & M. Okuno-Fujiwara & Andrew Postlewaite, 1990.
"Refining Cheap-Talk Equilibria,"
Discussion Papers
892R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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