Communication and competition
AbstractCharness and Dufwenberg (American Economic Review, June 2011, 1211-1237) have recently demonstrated that cheap-talk communication raises efficiency in bilateral contracting situations with adverse selection. We replicate their finding and check its robustness by introducing competition between agents. We find that communication and competition act as "substitutes:" communication raises efficiency in the absence of competition but lowers efficiency with competition, and competition raises efficiency without communication but lowers efficiency with communication. We briefly review some behavioral theories that have been proposed in this context and show that each can explain some but not all features of the observed data patterns. Our findings highlight the fragility of cheap-talk communication and may serve as a guide to refine existing behavioral theories.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Department of Economics - University of Zurich in its series ECON - Working Papers with number 074.
Date of creation: May 2012
Date of revision:
Cheap talk; adverse selection; competition; guilt aversion; lie aversion; inequality aversion; reciprocity;
Find related papers by JEL classification:
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-22 (All new papers)
- NEP-CBE-2012-05-22 (Cognitive & Behavioural Economics)
- NEP-COM-2012-05-22 (Industrial Competition)
- NEP-EXP-2012-05-22 (Experimental Economics)
- NEP-MIC-2012-05-22 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Christoph Vanberg, 2008. "Why Do People Keep Their Promises? An Experimental Test of Two Explanations -super-1," Econometrica, Econometric Society, vol. 76(6), pages 1467-1480, November.
- Mathias Dewatripont & Patrick Bolton, 2005.
ULB Institutional Repository
2013/9543, ULB -- Universite Libre de Bruxelles.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marita Kieser).
If references are entirely missing, you can add them using this form.