CFDP 1802

Dynamic Strategic Information Transmission

Author(s): 

Publication Date: May 2011

Revision Date: June 2011

Pages: 48

Abstract: 

This paper studies strategic information transmission in a dynamic environment where, each period, a privately informed expert sends a message and a decision maker takes an action. Our main result is that, in contrast to a static environment, full information revelation is possible. The gradual revelation of information and the eventual full revelation is supported by the dynamic rewards and punishments. The construction of a fully revealing equilibrium relies on two key features. The first feature is that the expert is incentivized, via appropriate actions, to join separable groups in which she initially pools with far-away types, then later reveals her type. The second feature is the use of trigger strategies. The decision maker is incentivized by the reward of further information revelation if he chooses the separation-inducing actions, and the threat of a stop in information release if he does not. Our equilibrium is non-monotonic. With monotonic partition equilibria, full revelation is impossible.

Keywords: 

Asymmetric information, Cheap talk, Dynamic strategic communication, Full information revelation

JEL Classification Codes: D82, D83

Note: 

Published in Journal of Economic Theory (May 2014), 151: 304-341 [DOI]