econ03-6.pdf (330.28 kB)
Download file

Informational cascades elicit private information

Download (330.28 kB)
report
posted on 29.04.2009, 08:48 by Olivier Gossner, Nicholas Melissas
We introduce cheap talk in a dynamic investment model with information externalities. We first show how social learning adversely a ects the credibility of cheap talk messages. Next, we show how an informational cascade makes thruthtelling incentive compatible. A separating equilibrium only exists for high surplus projects. Both an investment subsidy and an investment tax can increase welfare. The more precise the sender’s information, the higher her incentives to truthfully reveal her private information.

History

Publisher

Dept. of Economics, University of Leicester.

Available date

29/04/2009

Publisher version

http://www.le.ac.uk/economics/research/discussion/papers2003.html

Book series

Discussion Papers in Economics;03/6

Language

en