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Strategic Information Transmission in Networks

  • Andrea Galeotti

    ()

  • Christian Ghiglino

    ()

  • Francesco Squintani

    ()

We introduce a tractable model of cheap talk among players located on networks. In our model, a player can send a message to another player if and only if he is linked to him. We derive a sharp equilibrium and welfare characterization which reveals two basic insights. In equilibrium, the willingness of a player to communicate with a neighbor decreases with the number of opponents who communicate with the neighbor. The ex-ante equilibrium welfare of every player increases not only with the number of truthful reports transmitted in the network, but also when truthful reports are more evenly distributed across players. We apply our findings to the analysis of homophily in communities, to organization design, and to the study of endogenous network formation. Communication across communities decreases as communities become larger, and communication may be asymmetric: From large communities to small ones. In our set up, fully decentralized organizations maximize all players� welfare. Further, decentralized networks, where information may flow asymmetrically, endogenously form in equilibrium. Finally, we introduce the possibility of public communication in networks, and identify conditions under which public communication Pareto dominates private communication.

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Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 668.

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Date of creation: 28 May 2009
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Handle: RePEc:esx:essedp:668
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  1. Fiorina, Morris P, 1987. "Comment: Alternative Rationales for Restrictive Procedures [Collective Decisionmaking and Standing Committees: An Informational Rationale for Restrictive Amendment Procedures]," Journal of Law, Economics and Organization, Oxford University Press, vol. 3(2), pages 337-43, Fall.
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  13. Battaglini Marco, 2004. "Policy Advice with Imperfectly Informed Experts," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 4(1), pages 1-34, April.
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