Relational Communication with Transfers

Abstract

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