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Journal Articles International Economic Review Year : 2006

Informational cascades elicit private information

Abstract

We introduce cheap talk in a dynamic investment model with information externalities. We first show how social learning adversely affects the credibility of cheap talk messages. Next, we show how an informational cascade makes truth-telling 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.

Dates and versions

halshs-00754174 , version 1 (20-11-2012)

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Cite

Olivier Gossner, Nicolas Melissas. Informational cascades elicit private information. International Economic Review, 2006, 47 (1), pp.297-325. ⟨10.1111/j.1468-2354.2006.00380.x⟩. ⟨halshs-00754174⟩
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