Conversation with Secrets
Posted: 30 Sep 2016
Date Written: May 7, 2014
We analyze the sustainability of a conversation when one agent might be endowed with a piece of private information that affects the payoff distribution to its benefit. Such a secret can compromise the sustainability of conversation. Even without an obligation, the secret holder will disclose its secret if it prevents preemptive termination of the conversation. The non-secret holder lacks this possibility and stops the conversation. Competition and limited effectiveness of the conversation amplify this result of early disclosure and render the conversation process less sustainable. We discuss policy and managerial implications for industry standard development and joint ventures.
Keywords: asymmetric information, conversation, communication, disclosure, joint ventures, secrets, signaling, standard setting organizations
JEL Classification: D71, D83, L15, L24, O32, O34
Suggested Citation: Suggested Citation