When Words are not Enough
Journal of Economic Behavior & Organization , Volume 149 p. 294- 314
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.
|Cheap talk, Costly state verification|
|Journal of Economic Behavior & Organization|
|Organisation||Erasmus School of Economics|
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