We introduce a tractable model of cheap talk among players located on a network, where the network describes constraints in communication: a player A can send his signal to another player B only if A is linked to B. We derive a sharp equilibrium and welfare characterization which reveal two basic principles. First, the willingness of a player A to communicate with his neighbor B decreases with the number of opponents who communicate with B. Second, the ex-ante welfare of every player increases by distributing truthful reports evenly in the network. We apply our results to the analysis of endogenous network formation with strategic information transmission, to the study of homophily in communities, and to organizational design. We find that endogenous equilibrium networks are decentralized, and information may flow asymmetrically. We show that communication across communities is reduced as the size of the groups increase, and that large communities may communicate to small communities, whereas the opposite is not true. We find that the optimal minimally connected communication network is the line where agents are ordered according to their biases. Finally, we introduce the possibility of public communication in networks, and identify conditions such that public communication Pareto dominates private communication or viceversa.
CREED Seminars Amsterdam
- Speaker(s)
- Andrea Galeotti (University of Essex)
- Date
- 2009-05-28
- Location
- Amsterdam