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Information Supply with a Linear Signalling Rule: A Note on Distorted Signals

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  • Giovanna Nicodano

Abstract

An informed agent - whose welfare depends on two state variables, s1 and s2 - chooses a linear signalling rule that translates his private signal into a public signal. Conditional on the public signal receivers, whose welfare depends on state 1 alone, take actions which affect the informed agent's pay-off. When strategies are linear, information distortion is sufficient to guarantee public information supply on state 1 even when there is a conflict of interest with respect to state 1. When endogenous, information distortion is the equilibrium outcome even when there is coincidence of interests with respect to state 1.

Suggested Citation

  • Giovanna Nicodano, 1990. "Information Supply with a Linear Signalling Rule: A Note on Distorted Signals," CEPR Financial Markets Paper 0009, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ..
  • Handle: RePEc:cpr:ceprfm:0009
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    References listed on IDEAS

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    1. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 3-13.
    2. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
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