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Title: Informational cascades elicit private information
Authors: Gossner, Olivier
Melissas, Nicholas
First Published: Jun-2003
Publisher: Dept. of Economics, University of Leicester.
Abstract: We introduce cheap talk in a dynamic investment model with information externalities. We first show how social learning adversely a ects the credibility of cheap talk messages. Next, we show how an informational cascade makes thruthtelling incentive compatible. A separating equilibrium only exists for high surplus projects. Both an investment subsidy and an investment tax can increase welfare. The more precise the sender’s information, the higher her incentives to truthfully reveal her private information.
Series/Report no.: Discussion Papers in Economics
Type: Report
Appears in Collections:Reports, Dept. of Economics

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