Communication in the shadow of catastrophe

Inga Deimen and Dezső Szalay

Journal of Economic Theory, 2024, vol. 222, issue C

Abstract: We perform distributional comparative statics in a cheap talk model of adaptation. Receiver borne adaptation costs drive a wedge between the objectives of sender and receiver that is increasing in the magnitude of adaptation. We allow for infinite supports with infinite disagreement at the extremes and compare communication to unconstrained delegation. We study increases in risk that arise from transformations of the state variable. We find that linear transformations (implying increases in variance) decrease communication and delegation payoffs but do not change their ranking. By contrast, increasing, convex transformations (implying increases in tail risk) decrease the communication payoff relative to the delegation payoff. Our finding extends to the comparison of distributions with thin versus heavy tails.

Keywords: Strategic communication; Delegation; Organizations; Tail risk; Convex transform order; Uniform conditional variability order (search for similar items in EconPapers)
JEL-codes: D82 D83 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:222:y:2024:i:c:s0022053124001224

DOI: 10.1016/j.jet.2024.105916

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