Communication & competition

Jacob Goeree and Jingjing Zhang

Experimental Economics, 2014, vol. 17, issue 3, 438 pages

Abstract: Charness and Dufwenberg (Am. Econ. Rev. 101(4):1211–1237, 2011 ) have recently demonstrated that cheap-talk communication raises efficiency in bilateral contracting situations with adverse selection. We replicate their main finding and extend their design to include competition between agents. We find that communication and competition act as “substitutes:” communication raises efficiency in the absence of competition but not with competition, and competition raises efficiency without communication but lowers efficiency with communication. We briefly review some behavioral theories that have been proposed in this context and show that each can explain some but not all features of the observed data patterns. Our findings highlight the fragility of cheap-talk communication and may serve as a guide to refine existing behavioral theories. Copyright Economic Science Association 2014

Keywords: Cheap talk; Adverse selection; Competition; Guilt aversion; Lie aversion; Inequality aversion; Reciprocity; C92 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (13)

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DOI: 10.1007/s10683-013-9376-6

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