Optimal Strategic Communication: Can a Less Informed Expert Be More Informative?

Abstract

This paper investigates an extended version of Crawford-Sobel's (1982) communication game in which the principal can control the quality of the expert's information. We prove that the optimal quality of information is always bounded away from the full information and characterize the optimal information structure that maximizes players' ex-ante payoffs. Based on this, we show that our mechanism provides a superior ex-ante payoff for the principal, compared to both Crawford-Sobel's most informative equilibrium and optimal delegation. We then study multi-stage communication. This modification results in further ex-ante Pareto improvement since it allows for the step-by-step refinement of the expert's information, preserving truth-telling communication at every stage. Finally, we construct a mechanism in which approximately full information is revealed for a large sub-interval of the state space.

Keywords: Communication, Information, Cheap Talk

JEL Classification: C72, D81, D82, D83