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Communication and competition

Author

Listed:
  • Jacob K. Goeree
  • Jingjing Zhang

Abstract

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.

Suggested Citation

  • Jacob K. Goeree & Jingjing Zhang, 2012. "Communication and competition," ECON - Working Papers 074, Department of Economics - University of Zurich.
    • Handle: RePEc:zur:econwp:074
    as

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    File URL: https://www.zora.uzh.ch/id/eprint/62416/1/econwp074.pdf
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    References listed on IDEAS

    as
    1. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760, December.
    2. Ernst Fehr & Alexander Klein & Klaus M Schmidt, 2007. "Fairness and Contract Design," Econometrica, Econometric Society, vol. 75(1), pages 121-154, January.
    3. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 817-868.
    4. Christoph Vanberg, 2008. "Why Do People Keep Their Promises? An Experimental Test of Two Explanations -super-1," Econometrica, Econometric Society, vol. 76(6), pages 1467-1480, November.
    5. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    6. Gary Charness & Martin Dufwenberg, 2011. "Participation," American Economic Review, American Economic Association, vol. 101(4), pages 1211-1237, June.
    7. Jordi Brandts & David J. Cooper, 2007. "It's What You Say, Not What You Pay: An Experimental Study of Manager–Employee Relationships in Overcoming Coordination Failure," Journal of the European Economic Association, MIT Press, vol. 5(6), pages 1223-1268, December.
    8. Charness, Gary & Dufwenberg, Martin, 2003. "Promises & Partnership," Research Papers in Economics 2003:3, Stockholm University, Department of Economics.
    9. Gary Charness & Martin Dufwenberg, 2006. "Promises and Partnership," Econometrica, Econometric Society, vol. 74(6), pages 1579-1601, November.
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    Cited by:

    1. Heinrich, Timo & Brosig-Koch, Jeannette, 2015. "Promises and Social Distance in Buyer-Determined Procurement Auctions," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112892, Verein für Socialpolitik / German Economic Association.

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    More about this item

    Keywords

    Cheap talk; adverse selection; competition; guilt aversion; lie aversion; inequality aversion; reciprocity;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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