Communication and coordination with constraints

Raghul S. Venkatesh ()
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Raghul S. Venkatesh: Indian Institute of Science Education and Research

Review of Economic Design, 2024, vol. 28, issue 1, No 5, 89-124

Abstract: Abstract I study incentives for communication and policymaking in the presence of information asymmetry and constraints on the set of feasible policies. An informed and an uninformed agent both take decisions in a coordination game such that their actions exhibit positive spillover and are imperfectly substitutable. When agents communicate via cheap talk prior to the coordination stage, there is full information revelation as long as constraints are not binding. When constraints bind, communication results in threshold equilibria and partial revelation of information. The most informative threshold equilibrium maximizes the welfare of both agents. This paper is the first in the literature to establish a relationship between action constraints and incentives for strategic communication.

Keywords: Cheap talk; Capacity constraints; Strategic substitutes (search for similar items in EconPapers)
JEL-codes: C72 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10058-023-00336-8

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