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
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)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:149:y:2018:i:c:p:294-314
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