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When words are not enough

Suzanne H. Bijkerk, Vladimir Karamychev () and Otto H. Swank

Journal of Economic Behavior & Organization, 2018, vol. 149, issue C, 294-314

Abstract: Communication through ordinary talk is very common. Often, the receiver of information has the option to investigate a sender’s type. We extend a standard cheap-talk model by giving the receiver this option. We show that when the receiver bears most of the investigation cost, the option to investigate drives away most cheap-talk communication. When the sender pays a substantial part of the investigation cost, the option to investigate disciplines the sender. Introducing an investigation device to a cheap-talk model demonstrates the vulnerability of cheap talk on the one hand, and shows how communication can be improved on the other.

Keywords: Cheap talk; Costly state verification (search for similar items in EconPapers)
JEL-codes: D83 (search for similar items in EconPapers)
Date: 2018
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