When Words are not Enough
Communication through ordinary talk is very common. Often, the receiver of information has the option to investigate a sender’s type. We extend a standard cheap-talk model by giving the receiver this option. We show that when the receiver bears most of the investigation cost, the option to investigate drives away most cheap-talk communication.
When the sender pays a substantial part of the investigation cost, the option to investigate disciplines the sender. Introducing an investigation device to a cheap-talk model demonstrates the vulnerability of cheap talk on the one hand, and shows how communication can be improved on the other.
|Keywords||Cheap talk, Costly state verification|
|Persistent URL||dx.doi.org/10.1016/j.jebo.2018.03.009, hdl.handle.net/1765/105728|
|Journal||Journal of Economic Behavior & Organization|
Bijkerk, S.H, Karamychev, V.A, & Swank, O.H. (2018). When Words are not Enough. Journal of Economic Behavior & Organization, 149, 294–314. doi:10.1016/j.jebo.2018.03.009