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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 (Unpublished)

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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)
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:
DateEvent
June 2017Published
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Status: Not Peer Reviewed
Publication Status: Unpublished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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