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Cheap talk with strategic substitutability
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Venkatesh, Raghul S. (2017) Cheap talk with strategic substitutability. Discussion Paper. Coventry: University of Warwick. Department of Economics. CRETA Discussion Paper Series (31). (Unpublished)
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Official URL: http://www2.warwick.ac.uk/fac/soc/economics/resear...
Abstract
In the classic Crawford-Sobel (CS) model of strategic communication between an informed Sender and uninformed Receiver, perfect information transmission is never achieved as an equilibrium outcome. I present a modified version of the CS cheap talk game with the following two innovations: (i) both players take actions, and
(ii) actions are strategic substitutes. In contrast to the CS setup, the modified game can facilitate perfect information revelation. I characterize the conditions under which a full information revelation
equilibrium exists. When these conditions are violated, only partial revelation equilibria exist. Under partial revelation, the Sender reveals information up to a threshold state and pools beyond this threshold, resulting in some loss of information. Welfare analysis suggests that partial revelation equilibria with a higher threshold pareto dominate those with lower thresholds. Crucially, a higher threshold equilibrium is also interim efficient – every Sender type at least weakly prefers this over a lower threshold equilibrium.
| Item Type: | Working or Discussion Paper (Discussion Paper) | ||||
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| Subjects: | H Social Sciences > HB Economic Theory | ||||
| Divisions: | Faculty of Social Sciences > Economics | ||||
| Library of Congress Subject Headings (LCSH): | Game theory, Information theory -- Mathematical models | ||||
| Series Name: | CRETA Discussion Paper Series | ||||
| Publisher: | University of Warwick. Department of Economics | ||||
| Place of Publication: | Coventry | ||||
| Official Date: | June 2017 | ||||
| Dates: |
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| Number: | 31 | ||||
| Number of Pages: | 30 | ||||
| Institution: | University of Warwick | ||||
| Status: | Not Peer Reviewed | ||||
| Publication Status: | Unpublished | ||||
| Access rights to Published version: | Open Access | ||||
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