On the Limits of Cheap Talk for Public Good Provision
22 Pages Posted: 26 Mar 2012
Date Written: January 18, 2012
We study a situation where, as a consequence of private information, agents do not have the incentive to invest in a public good if they are unable to have prior discussion with their partners. We show that in a voluntary contribution mechanism with cheap talk, any finite message space does not provide efficiency gain relative to a binary message space when agents truthfully report their type. Using laboratory experiments, we observe that communication is a useful mechanism to enhance efficiency, mainly by allowing players to coordinate on the zero contribution when the project is not desirable for at least one of them. However, we find that such efficiency gain seems to be very limited, since the simplest communication structure ("Yes" or "No" messages) provides the same incentives to the agents as larger message spaces.
Keywords: voluntary contribution mechanism, incomplete information, communication, cheap talk, threshold equilibria, experiments, coordination games
JEL Classification: C72, C91, D83, H41
Suggested Citation: Suggested Citation