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Managerial Economics of Cheap Talk

52 Pages Posted: 10 Nov 2013  

Saori Chiba

Kyoto University - Graduate School of Economics

Kaiwen Leong

Nanyang Technological University (NTU)

Date Written: November 1, 2013

Abstract

Consider an uninformed decision maker (DM) who communicates with a partially informed speaker (S) through cheap talk. DM can choose a project to implement or the outside option of no project. We show that if the agents’ ex-ante rankings over projects do not coincide, then this conflict of interest can reduce S’s incentive to pander and hence facilitate information transmission. Intuitively, S’s ex-ante bias and the incentive to pander affect S’s information revelation in opposite directions and hence offset each other. We also explore the relationship between information transmission and managerial issues such as delegation, disclosure, and interpersonal authority.

Keywords: Cheap Talk, Delegation, Disclosure, Interpersonal Authority, Pandering

JEL Classification: D82, D83, M10

Suggested Citation

Chiba, Saori and Leong, Kaiwen, Managerial Economics of Cheap Talk (November 1, 2013). Department of Management, Università Ca' Foscari Venezia Working Paper No. 2013/24. Available at SSRN: https://ssrn.com/abstract=2352037

Saori Chiba (Contact Author)

Kyoto University - Graduate School of Economics ( email )

Japan
+81-75-753-3500 (Phone)

HOME PAGE: http://www.econ.kyoto-u.ac.jp/~chiba/

Kaiwen Leong

Nanyang Technological University (NTU) ( email )

S3 B2-A28 Nanyang Avenue
Singapore, 639798
Singapore

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