Managerial Economics of Cheap Talk

Saori Chiba and Kaiwen Leong ()
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Kaiwen Leong: Nanyang Technological University

No 24, Working Papers from Venice School of Management - Department of Management, Università Ca' Foscari Venezia

Abstract: Consider an uninformed decision maker (DM) who communicates with a partially informed speaker (S) through cheap talk. DM can choose a project to implement or the outside option of no project. We show that if the agentsÕ ex-ante rankings over projects do not coincide, then this conflict of interest can reduce SÕs incentive to pander and hence facilitate information transmission. Intuitively, SÕs ex-ante bias and the incentive to pander affect SÕs information revelation in opposite directions and hence offset each other. We also explore the relationship between information transmission and managerial issues such as delegation, disclosure, and interpersonal authority.

Keywords: Cheap Talk; Delegation; Disclosure; Interpersonal Authority; Pandering (search for similar items in EconPapers)
JEL-codes: D82 D83 M10 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2013-11
New Economics Papers: this item is included in nep-cta, nep-mic and nep-ppm
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