Goodwill in Communication

27 Pages Posted: 13 Aug 2019 Last revised: 18 Aug 2019

See all articles by Aditya Kuvalekar

Aditya Kuvalekar

Universidad Carlos III de Madrid

Elliot Lipnowski

Columbia University

Joao Ramos

Marshall School of Business - University of Southern California

Date Written: August 18, 2019

Abstract

An expert advises a decision maker over time. With both the quality of advice and the extent to which it is followed remaining private, the players have limited information with which to discipline each other. Even so, communication in and of itself facilitates cooperation, the relationship evolving based on the expert’s advice. We show a formal equivalence between our setting and one of cheap talk with capped money burning. This enables an exact characterization (at fixed discounting) of the expert’s attainable payoffs. While an ongoing relationship often helps, our characterization implies that relational incentives alone can never restore commitment power.

JEL Classification: D83, D82, D73, D23

Suggested Citation

Kuvalekar, Aditya and Lipnowski, Elliot and Ramos, Joao, Goodwill in Communication (August 18, 2019). Available at SSRN: https://ssrn.com/abstract=3435196 or http://dx.doi.org/10.2139/ssrn.3435196

Aditya Kuvalekar

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Elliot Lipnowski (Contact Author)

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Joao Ramos

Marshall School of Business - University of Southern California ( email )

701 Exposition Boulevard, STE 205
Los Angeles, CA 90089-1422
United States

HOME PAGE: http://www.joaoaramos.com/

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