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Communication & competition


Goeree, Jacob K; Zhang, Jingjing (2014). Communication & competition. Experimental Economics, 17(3):421-438.

Abstract

Charness and Dufwenberg (Am. Econ. Rev. 101(4):1211–1237, 2011) have recently demonstrated that cheap-talk communication raises efficiency in bilateral contracting situations with adverse selection. We replicate their main finding and extend their design to include competition between agents. We find that communication and competition act as “substitutes:” communication raises efficiency in the absence of competition but not 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.

Charness and Dufwenberg (Am. Econ. Rev. 101(4):1211–1237, 2011) have recently demonstrated that cheap-talk communication raises efficiency in bilateral contracting situations with adverse selection. We replicate their main finding and extend their design to include competition between agents. We find that communication and competition act as “substitutes:” communication raises efficiency in the absence of competition but not 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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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Uncontrolled Keywords:Cheap talk Adverse selection Competition Guilt aversion Lie aversion Inequality aversion Reciprocity C92
Language:English
Date:September 2014
Deposited On:14 Oct 2014 14:32
Last Modified:05 Apr 2016 18:25
Publisher:Springer
ISSN:1386-4157
Additional Information:The original publication is available at www.springerlink.com
Publisher DOI:https://doi.org/10.1007/s10683-013-9376-6
Permanent URL: https://doi.org/10.5167/uzh-99573

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