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Dynamic communication with trading commissions

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  • Singh, Hargungeet

Abstract

This paper studies a dynamic cheap-talk communication game to investigate the role of trading commissions in broker–investor relationships. An investor’s optimal portfolio mix is fixed and privately known to a broker. The stochastic evolution of the portfolio-mix can be adjusted by the investor at a fixed cost paid to the broker. I consider two cases — whether the broker (sender) can or cannot send uninformative messages to the investor (receiver). In the Markov-Perfect Equilibria, the portfolio mix has an informational value to the investor because it influences the broker’s incentives for truth-telling. The presence of uninformative messages further restricts the set of such ‘truth-telling’ portfolio-mix-values. As the investor’s payoff from being informed becomes very large, and the sender is able to send uninformative messages, the only pure-strategy equilibrium involves no informative communication, and any informative equilibrium involves delays in communication. I also study an extension with proportional adjustment costs.

Suggested Citation

  • Singh, Hargungeet, 2026. "Dynamic communication with trading commissions," Journal of Mathematical Economics, Elsevier, vol. 122(C).
    • Handle: RePEc:eee:mateco:v:122:y:2026:i:c:s0304406825001211
    DOI: 10.1016/j.jmateco.2025.103204
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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