Communication and Cooperation in Markets

S. Nageeb Ali and David A. Miller

American Economic Journal: Microeconomics, 2022, vol. 14, issue 4, 200-217

Abstract: Many markets rely on traders truthfully communicating who has cheated in the past and ostracizing those traders from future trade. This paper investigates when truthful communication is incentive compatible. We find that if each side has a myopic incentive to deviate, then communication incentives are satisfied only when the volume of trade is low. By contrast, if only one side has a myopic incentive to deviate, then communication incentives do not constrain the volume of supportable trade. Accordingly, there are strong gains from structuring trade so that one side either moves first or has its cooperation guaranteed by external enforcement.

JEL-codes: D82 D83 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1257/mic.20200296

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