Honesty, lemons, and symbolic signals
Under asymmetric information, dishonest sellers lead to market unraveling in the lemons model. An additional cost of dishonesty is that language becomes cheap talk. We develop instead a model where people derive utility from actions (what they say), as well as from outcomes, so talk is costly. We find that the existence of honest agents that mean what they say is not enough to make trade more likely, unless a traceability condition that prevents arbitrage is met. When we introduce a continuum of misrepresentation cost types and qualities, full market unraveling is not possible and babbling equilibria are eliminated. More generally, costly talk is a special kind of signal, a symbolic signal that presupposes linguistic conventions, otherwise truth and falsehood, as well as misrepresentation costs, are undefined.
|Date of creation:||Jul 2012|
|Date of revision:|
|Contact details of provider:|| Postal: Av. Córdoba 374, (C1054AAP) Capital Federal|
Phone: (5411) 6314-3000
Fax: (5411) 4314-1654
Web page: http://www.cema.edu.ar/publicaciones/doc_trabajo.html
More information through EDIRC
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.:
- Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, May.
- Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 355-374.
- Ernesto H. Stein & Jorge M. Streb, 1999.
"Elections and the Timing of Devaluations,"
Research Department Publications
4164, Inter-American Development Bank, Research Department.
- Ernesto H. Stein & Jorge M. Streb, 1999. "Elections and the Timing of Devaluations," IDB Publications (Working Papers) 6452, Inter-American Development Bank.
- Ernesto H. Stein & Jorge M. Streb, 1999. "Elections and the Timing of Devaluations," CEMA Working Papers: Serie Documentos de Trabajo. 140, Universidad del CEMA.
- Jorge M. Streb & Gustavo Torrens, 2011.
CEMA Working Papers: Serie Documentos de Trabajo.
443, Universidad del CEMA, revised Mar 2014.
- Michihiro Kandori, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 63-80.
- William Mitchell, 1984. "Schumpeter and public choice, Part I: Precursor to public choice?," Public Choice, Springer, vol. 42(1), pages 73-88, January.
- George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
When requesting a correction, please mention this item's handle: RePEc:cem:doctra:492. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Valeria Dowding)
If references are entirely missing, you can add them using this form.