Cheap-Talk Referrals of Differentiated Experts in Repeated Relationships

In-Uck Park

RAND Journal of Economics, 2005, vol. 36, issue 2, 391-411

Abstract: The effectiveness of cheap talk advice is examined in recurrent relationships between a customer and multiple experts who provide differentiated professional services. The main findings are: (i) Full honesty is not sustainable if the profitability of service provision varies widely across problems. (ii) As there are more experts due to finer specialization, the maximum equilibrium honesty level deteriorates. (iii) Nonetheless, the equilibria that satisfy an internal consistency condition, implement the same (unique) honesty level regardless of the number of experts. Furthermore, the customer can extract this honesty level by consulting a ``panel'' of only one or two (but no more) experts all the time.

Date: 2005
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