Relational Communication with Transfers

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