Cheap Talk with an Exit Option: A Model of Exit and Voice

Takashi Shimizu

No 1607, Discussion Papers from Graduate School of Economics, Kobe University

Abstract: The paper presents a formal model of the exit and voice framework proposed by Hirschman. More speci cally, we modify Crawford and Sobel's cheap talk model such that the sender of a cheap talk message has an exit option. We demonstrate that the presence of the exit option may increase the informativeness of cheap talk and improve welfare if the exit option is relatively attractive to the sender and relatively unattractive to the receiver. Moreover, it is veried that perfect information transmission can be approximated in the limit. The results suggest that the exit reinforces the voice in that the credibility of exit increases the informativeness of the voice.

Keywords: Exit; Voice; Cheap Talk; Informativeness; Credibility (search for similar items in EconPapers)
JEL-codes: D23 D82 J5 L22 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2016-02
New Economics Papers: this item is included in nep-mic
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http://www.econ.kobe-u.ac.jp/RePEc/koe/wpaper/2016/1607.pdf (application/pdf)

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Journal Article: Cheap talk with an exit option: a model of exit and voice (2017)
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