Goodwill in Communication
31 Pages Posted: 13 Aug 2019 Last revised: 23 Mar 2021
Date Written: March 1, 2021
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: Suggested Citation