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.

No abstract

In markets for retail financial products and health services, consumers often rely on the advice of intermediaries to decide which specialized offering best fits their needs. Product providers, in turn, compete to influence the intermediaries' advice through hidden kickbacks or disclosed commissions. Motivated by the controversial role of these widespread practices, we formulate a model to analyze competition through commissions from a positive and normative standpoint. The model highlights the role of commissions in making the advisor responsive to supply-side incentives. We characterize situations when commonly adopted policies such as mandatory disclosure and caps on commissions have unintended welfare consequences. (JEL D21, D82, D83, G21, L15, L25)

Privately informed individuals speak openly in front of other members of a committee about the desirability of a public decision. Each individual wishes to appear well informed. For any given order of speech, committee members may herd by suppressing their true information. With individuals of heterogeneous expertise, optimizing over the order of speech can improve the extraction of information, but not perfectly so. It is not always optimal to use the common anti-seniority rule whereby experts speak in order of increasing expertise. A committee with more able experts may be afflicted by greater herding problems, yielding a worse outcome. One Englishman is an island. Two Englishmen are a queue. Three Englishmen are a committee.

This paper analyzes the implications of the inherent conflict between two tasks performed by direct marketing agents: prospecting for customers and advising on the product's "suitability" for the specific needs of customers. When structuring salesforce compensation, firms trade off the expected losses from "misselling" unsuitable products with the agency costs of providing marketing incentives. We characterize how the equilibrium amount of misselling (and thus the scope of policy intervention) depends on features of the agency problem including: the internal organization of a firm's sales process, the transparency of its commission structure, and the steepness of its agents' sales incentives. (JEL M31, M37, M52)

We develop and compare two theories of professional forecasters' strategic behavior. The first theory, reputational cheap talk, posits that forecasters aim at convincing the market that they are well informed. The market evaluates their forecasting talent on the basis of the forecasts and the realized state. If the market expects the forecasters to report their posterior expectations honestly, then forecasts are shaded toward the prior mean. With correct market expectations, equilibrium forecasts are imprecise but not shaded. In the second theory, forecasters compete in a forecasting contest with prespecified rules. In a winner-take-all contest, equilibrium forecasts are excessively differentiated.Keywords: Forecasting; Reputation; Cheap talk; Contest; Exaggeration JEL Classification: D82; G20 * We thank Dean Croushore for essential feedback in the early stages of this project; Owen Lamont for generously giving us part of the the data used for Figure 1 along with very useful suggestions; Marco Battaglini for excellent discussion of the paper; Eric Zitzewitz for extremely helpful feedback; an anonymous referee for many constructive suggestions;

This paper analyzes information reporting by a privately informed expert concerned about being perceived to have accurate information. When the expert's reputation is updated on the basis of the report as well as the realized state, the expert typically does not wish to truthfully reveal the signal observed. The incentives to deviate from truthtelling are characterized and shown to depend on the information structure. In equilibrium, experts can credibly communicate only part of their information. Our results also hold when experts have private information about their own accuracy and care about their reputation relative to others.

This paper investigates the determinants of the compensation structure for brokers who advise customers regarding the suitability of …nancial products. Our model explains why brokers are commonly compensated indirectly through contingent commissions paid by product providers. While biasing the broker's recommendation, commissions can enhance e¢ ciency by improving the broker's incentives to acquire information. When customers are naive about the broker's con ‡ict of interest, product providers exploit the customers' incorrect perceptions by increasing product prices and commissions, while charging no direct fee for advice. We analyze the e¤ectiveness of various consumer …nancial protection regulations depending on the rationality of customers.