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Informational cascades elicit private information

Author

Listed:
  • Olivier Gossner

    (CERAS - Centre d'enseignement et de recherche en analyse socio-économique - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique)

  • Nicolas Melissas

    (University of Leicester)

Abstract

We introduce cheap talk in a dynamic investment model with information externalities. We first show how social learning adversely affects the credibility of cheap talk messages. Next, we show how an informational cascade makes truth-telling incentive compatible. A separating equilibrium only exists for high-surplus projects. Both an investment subsidy and an investment tax can increase welfare. The more precise the sender's information, the higher her incentives to truthfully reveal her private information.

Suggested Citation

  • Olivier Gossner & Nicolas Melissas, 2006. "Informational cascades elicit private information," Post-Print halshs-00754174, HAL.
    • Handle: RePEc:hal:journl:halshs-00754174
    DOI: 10.1111/j.1468-2354.2006.00380.x
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    Cited by:

    1. Paul Heidhues & Nicolas Melissas, 2010. "Technology adoption, social learning, and economic policy," ESMT Research Working Papers ESMT-10-007, ESMT European School of Management and Technology.
    2. Camara, Fanny, 2019. "Avoiding Judgement by Recommending Inaction: Beliefs Manipulation and Reputational Concerns," CEPR Discussion Papers 14149, C.E.P.R. Discussion Papers.
    3. Heidhues, Paul & Melissas, Nicolas, 2012. "Rational exuberance," European Economic Review, Elsevier, vol. 56(6), pages 1220-1240.
    4. Olivier Gossner & Nicolas Melissas, 2006. "Informational Cascades Elicit Private Information ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(1), pages 297-325, February.
    5. Pastine, Tuvana, 2005. "Social Learning in Continuous Time: When are Informational Cascades More Likely to be Inefficient?," CEPR Discussion Papers 5120, C.E.P.R. Discussion Papers.
    6. Matthew Doyle, 2010. "Informational externalities, strategic delay, and optimal investment subsidies," Canadian Journal of Economics, Canadian Economics Association, vol. 43(3), pages 941-966, August.
    7. Wagner, Peter A. & Klein, Nicolas, 2022. "Strategic investment and learning with private information," Journal of Economic Theory, Elsevier, vol. 204(C).

    More about this item

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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