Experimental Economics

, Volume 17, Issue 3, pp 421–438

Communication & competition

Authors

  • Jacob K. Goeree
    • Department of EconomicsUniversity of Zürich
    • Department of EconomicsUniversity of Technology Sydney
    • Department of EconomicsUniversity of Zürich
Original Paper

DOI: 10.1007/s10683-013-9376-6

Cite this article as:
Goeree, J.K. & Zhang, J. Exp Econ (2014) 17: 421. doi:10.1007/s10683-013-9376-6

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.

Keywords

Cheap talkAdverse selectionCompetitionGuilt aversionLie aversionInequality aversionReciprocity

JEL Classification

C92

Supplementary material

10683_2013_9376_MOESM1_ESM.pdf (595 kb)
(PDF 595 kB)

Copyright information

© Economic Science Association 2013