Relational Communication with Transfers
48 Pages Posted: 1 Mar 2018
Date Written: March 1, 2018
We enrich a cheap-talk game between an informed sender and an uninformed receiver by adding repeated interactions and voluntary transfer payments. Transfers play two roles here: they motivate the receiver’s decision-making and signal the sender’s information. Although full separation can always be supported in equilibrium, partial or complete pooling is optimal if the receiver’s decision-making is too responsive to information. In this case, the receiver’s decision-making is disciplined by pooling extreme states, where she is most tempted to defect. In characterizing optimal equilibria, we establish new results on monotone persuasion.
Keywords: strategic communication, monotone persuasion, relational contracts
JEL Classification: C73, D82, D83
Suggested Citation: Suggested Citation