Hiding an Inconvenient Truth: Lies and Vagueness
Games and Economic Behavior (2011), 244-261
TILEC Discussion Paper No. 2010-029 (Revision of 2008-047)
CentER Discussion Paper Series No. 2010-80 (Revision of 2008-107)
30 Pages Posted: 6 Aug 2010 Last revised: 14 Feb 2015
Date Written: July 1, 2010
Abstract
We examine communication in a 2-player sequential public good game in which the leader has private information about the return from contributing to it. The leader decides first and the follower observes the leader's contribution, before deciding whether or not to contribute. Without communication, the unique equilibrium is fully efficient. We study whether the introduction of communication about returns can destroy efficiency. Communication can be precise (about the exact return), or vague. If leaders would communicate precisely and truthfully, they would reveal that followers would do best to free ride, thereby distorting both players' incentives to invest and destroying efficiency. We show that leaders lie in order to avoid these negative consequences. If vague messages are allowed, the extent of lying drops and vague messages are used instead. Overall, followers contribute when the leader does, and the introduction of communication neither increases nor decreases contributions to the public good.
Keywords: Communication, Efficiency, Lying, Public Goods
JEL Classification: C72, C92, D83, H41
Suggested Citation: Suggested Citation
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