This paper studies a model of strategic communication by an informed and upwardly biased sender to one or more receivers. Applications include situations in which (i) it is costly for the sender to misrepresent information, due to legal, technological, or moral constraints, or (ii) receivers may be credulous and blindly believe the sender's recommendation. In contrast to the predictions obtained in Crawford and Sobel's [9] benchmark cheap talk model, our model admits a fully separating equilibrium, provided that the state space is unbounded above. The language used in equilibrium is inflated and naive receivers are deceived.

Abstract. We compare three common dispute resolution processes -negotiation, mediation, and arbitration -in the framework of Crawford and Sobel (1982). Under negotiation, the two parties engage in (possibly arbitrarily long) face-to-face cheap talk. Under mediation, the parties communicate with a neutral third party who makes a non-binding recommendation. Under arbitration, the two parties commit to conform to the third party recommendation. We characterize and compare the optimal mediation and arbitration procedures. Both mediators and arbitrators should optimally filter information, but mediators should also add noise to it. We find that unmediated negotiation performs as well as mediation if and only if the degree of conflict between the parties is low.

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It is well known that when agents are fully rational, compulsory public insurance may make all agents better off in the Rothschild and Stiglitz (1976) model of insurance markets. We find that when sufficiently many agents underestimate their personal risks, compulsory insurance makes low-risk agents worse off. Hence, behavioral biases may weaken some of the well-established rationales for government intervention based on asymmetric information. (JEL D82, G22)

Strategic information transmission, Naive audience, Bounded support, C72, D72, D83,

Crawford and Sobel (1982), this literature highlights the limited scope of information transmission via cheap talk messages, which generically leads to inaccurate or imprecise decisions (see Austen-Smith 1993; Krehbiel 1987, 1989;Krishna and Morgan 2001b;Wolinsky 2002;Battaglini 2002 and2004;Ambrus and Takahashi 2008). A common assumption in this literature is that perfect information is exogenously given to the sender for free. The exceptions include Austen-Smith (1994), Ottaviani (2000), and Ivanov (2010). In Austen-Smith (1994), the sender may either acquire complete information or remain ignorant. In Ottaviani (2000), the exogenous information available to the expert is noisy. In Ivanov (2010), informational structure can be selected costlessly by the decision maker.However, in reality information is typically obtained through time-consuming and costly research effort.1 This being our point of departure, we study a model of strategic communication in which information is costly and the decision to acquire

We analyze how communication and voting interact when there is uncertainty about players' preferences. We consider two players who vote on forming a partnership with uncertain rewards. It may or may not be worthwhile to team up. Both players want to make the right decision but differ in their attitudes toward making an error. Players' preferences are private information and each player is partially informed about the state of the world. Before voting, players can talk to each other.We completely characterize the equilibria and show that the main role of communica-tion is to provide a double check: When there is a conflict between a player's preferences and her private information about the state, she votes in accordance with her private information only if it is confirmed by the message she receives from her opponent. In a scenario where only one of the players is allowed to talk, the benefits of communication are independent of the identity of the sender. AbstractWe analyze how communication and voting interact when there is uncertainty about players' preferences. We consider two players who vote on forming a partnership with uncertain rewards. It may or may not be worthwhile to team up. Both players want to make the right decision but differ in their attitudes toward making an error. Players' preferences are private information and each player is partially informed about the state of the world. Before voting, players can talk to each other.We completely characterize the equilibria and show that the main role of communication is to provide a double check: When there is a conflict between a player's preferences and her private information about the state, she votes in accordance with her private information only if it is confirmed by the message she receives from her opponent. In a scenario where only one of the players is allowed to talk, the benefits of communication are independent of the identity of the sender.

Electoral platform convergence is perceived unfavorably by both the popular press and many academic scholars. Arguably, to paraphrase, “it does not provide enough choice” between candidates. This article provides a formal account of the perceived negative effects of platform convergence. We show that when parties do not know voters' preferences precisely, all voters ex ante prefer some platform divergence to convergence at the ex ante median. After characterizing the unique symmetric equilibrium of competition between responsible (policy-motivated) parties, we conclude that all voters ex ante prefer responsible parties to opportunistic (purely office-motivated) ones when parties are sufficiently ideologically polarized that platforms diverge, but not so polarized that they diverge excessively. However, greater polarization increases the scope for office benefits as an instrument for institutional design. We calculate the socially optimal level of platform divergence and show that office benefits can be used to achieve this first-best outcome, if parties are sufficiently ideologically polarized.