Communication and Consensus

Bilge Yilmaz and Archishman Chakraborty
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Bilge Yilmaz: Stanford University

No 1185, 2009 Meeting Papers from Society for Economic Dynamics

Abstract: Our model of communication belongs to the growing literature on cheap talk games starting from Crawford and Sobel (1982). In contrast to the Crawford-Sobel model in our setting the decision problem is binary not continuous. The fundamental coarseness of a binary decision problem is the principal reason why shareholder consensus can be generated in our setting. We feel that a binary decision model is the appropriate choice for the application we have in mind. In practice corporate boards rarely have control over fine details of management actions such as the scale of investment or the extent of marketing and advertising expenditures. Typically the board can only provide management with approval (or not) to pursue a particular strategic plan after taking account managerial discretion (and possible agency) in implementing the details of the plan.

Date: 2009
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