Permanent URL to this publication: http://dx.doi.org/10.5167/uzh-62416
Goeree, Jacob K; Zhang, Jingjing (2012). Communication and Competition. Working paper series / Department of Economics 74, University of Zurich.
Charness and Dufwenberg (American Economic Review, June 2011, 1211-1237) have recently demonstrated that cheap-talk communication raises efficiency in bilateral contracting situations with adverse selection. We replicate their finding and check its robustness by introducing competition between agents. We find that communication and competition act as "substitutes:" communication raises efficiency in the absence of competition but lowers efficiency with competition, and competition raises efficiency without communication but lowers efficiency with communication. We briefly review some behavioral theories that have been proposed in this context and show that each can explain some but not all features of the observed data patterns. Our findings highlight the fragility of cheap-talk communication and may serve as a guide to refine existing behavioral theories.
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|Item Type:||Working Paper|
|Communities & Collections:||03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
|Dewey Decimal Classification:||330 Economics|
|Uncontrolled Keywords:||Cheap talk, adverse selection, competition, guilt aversion, lie aversion, inequality aversion, reciprocity|
|Deposited On:||16 May 2012 12:52|
|Last Modified:||19 Mar 2013 13:02|
|Series Name:||Working paper series / Department of Economics|
|Number of Pages:||18|
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