Truth or Efficiency? Communication in a Sequential Public Good Game

M. Serra Garcia, E.E.C. van Damme and Jan Potters
Authors registered in the RePEc Author Service: Marta Serra-Garcia

No 2008-107, Discussion Paper from Tilburg University, Center for Economic Research

Abstract: We examine communication in a 2-player sequential public good game in which the leader has private information about the return from contributing to it. The leader decides first and the follower observes the leader's contribution, before de- ciding whether or not to contribute. Without communication, the unique equilib- rium is fully efficient. We study whether the introduction of communication about returns can destroy efficiency. Communication can be precise (about the exact re- turn), or vague. If leaders would communicate precisely and truthfully, they would reveal that followers would do best to free ride, thereby distorting both players' incentives to invest and destroying efficiency. We show that leaders lie in order to avoid these negative consequences. If vague messages are allowed, the extent of lying drops and vague messages are used instead. Overall, followers contribute when the leader does, and the introduction of communication neither increases nor decreases contributions to the public good.

JEL-codes: C72 C92 D83 H41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-cta, nep-exp and nep-pbe
Date: 2008
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Working Paper: Truth or Efficiency? Communication in a Sequential Public Good Game (2008)
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