Managing Consultation for Monetary Transfers

Abstract

This study aims to examine the role of payment made by an informed party for cheap-talk communication. We develop a model of an expert and a decision maker, in which the expert sends cheap-talk messages and voluntarily pays monetary transfers. By ignoring some advice, the decision maker can induce the expert to pay transfers as costly signalling. Consequently, equilibria in which information is fully revealed are not optimal for the decision maker, even if the parties have a common interest. Furthermore, the decision maker prefers a biased expert to an unbiased expert, because the signalling incentive through monetary transfers is enhanced by the expert's bias.

Keywords: Cheap Talk, Signalling, Monetary Transfers, Informational Lobbying, Status-quo Rigidity

JEL Classification: D82, D83, D86, D72