Information Supply with a Linear Signalling Rule: A Note on Distorted Signals

Giovanna Nicodano

CEPR Financial Markets Paper from European Science Foundation Network in Financial Markets, c/o C.E.P.R, 33 Great Sutton Street, London EC1V 0DX.

Abstract: An informed agent - whose welfare depends on two state variables, s1 and s2 - chooses a linear signalling rule that translates his private signal into a public signal. Conditional on the public signal receivers, whose welfare depends on state 1 alone, take actions which affect the informed agent's pay-off. When strategies are linear, information distortion is sufficient to guarantee public information supply on state 1 even when there is a conflict of interest with respect to state 1. When endogenous, information distortion is the equilibrium outcome even when there is coincidence of interests with respect to state 1.

Keywords: Cheap Talk; Strategic Information Provision (search for similar items in EconPapers)
Date: 1990-11
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