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Managerial Economics of Cheap Talk

Listed author(s):
  • Saori Chiba

    ()

    (Dept. of Management, Università Ca' Foscari Venice)

  • Kaiwen Leong

    ()

    (Nanyang Technological University)

Consider an uninformed decision maker (DM) who communicates with a partially informed speaker (S) through cheap talk. DM can choose a project to implement or the outside option of no project. We show that if the agentsÕ ex-ante rankings over projects do not coincide, then this conflict of interest can reduce SÕs incentive to pander and hence facilitate information transmission. Intuitively, SÕs ex-ante bias and the incentive to pander affect SÕs information revelation in opposite directions and hence offset each other. We also explore the relationship between information transmission and managerial issues such as delegation, disclosure, and interpersonal authority.

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File URL: http://virgo.unive.it/wpideas/storage/2013wp24.pdf
File Function: First version, 2013
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Paper provided by Department of Management, Università Ca' Foscari Venezia in its series Working Papers with number 24.

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Length: 51 pages
Date of creation: Nov 2013
Handle: RePEc:vnm:wpdman:60
Contact details of provider: Postal:
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Web page: http://www.unive.it/dip.management
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  1. James G. March, 1991. "Exploration and Exploitation in Organizational Learning," Organization Science, INFORMS, vol. 2(1), pages 71-87, February.
  2. Li, Ming & Madarász, Kristóf, 2008. "When mandatory disclosure hurts: Expert advice and conflicting interests," Journal of Economic Theory, Elsevier, vol. 139(1), pages 47-74, March.
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  5. Saori Chiba & Kaiwen Leong & Kaiwen Leong, 2013. "Cheap Talk with Outside Options," Working Papers 16, Department of Management, Università Ca' Foscari Venezia.
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  12. Shimizu, Takashi, 2013. "Cheap talk with an exit option: The case of discrete action space," Economics Letters, Elsevier, vol. 120(3), pages 397-400.
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