Relational Communication with Transfers

27 Pages Posted: 12 Sep 2015

See all articles by Anton Kolotilin

Anton Kolotilin

University of New South Wales (UNSW)

Hongyi Li

UNSW Australia Business School, School of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: September 4, 2015

Abstract

We enrich the Crawford and Sobel (1982) model of strategic communication between an informed sender and an uninformed receiver by adding repeated interactions and voluntary transfer payments. Transfers play two roles here: they incentivise decision-making and signal information. Although full separation can be 'frictionlessly' attained in equilibrium, partial or complete pooling is optimal if preferences are sufficiently divergent. In this case, extreme information is optimally pooled to discipline the receiver's decision-making by reducing her reneging temptation. As an extension, we consider a partially-informed receiver. As the receiver becomes more informed, welfare strictly decreases because self-enforcing agreements become harder to sustain.

Keywords: communication, transferable utility, signaling, information structure, relational contracts

JEL Classification: C73, D82, D83

Suggested Citation

Kolotilin, Anton and Li, Hongyi, Relational Communication with Transfers (September 4, 2015). Available at SSRN: https://ssrn.com/abstract=2658944 or http://dx.doi.org/10.2139/ssrn.2658944

Anton Kolotilin (Contact Author)

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

Hongyi Li

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

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