When Talk Ain't Cheap - Costly Information Transmission in Continuous Time

26 Pages Posted: 10 Mar 2008 Last revised: 4 Nov 2008

See all articles by Hefei Wang

Hefei Wang

University of Illinois at Chicago - Department of Finance

Date Written: October 20, 2008

Abstract

This paper formulates a continuous time information transmission model in which an altruistic sender privately observes a stochastic state variable, and incurs a communication cost when she sends a message. We study three issues associated with this costly information transmission: 1) The sender's optimal strategy involves sending discrete messages; 2) With pre-fixed ranking intervals, the sender optimally sets a tolerance band around the cutoff point of each interval; 3) The optimal announcement frequency is characterized. We also propose to use this model to study the tradeoff between rating accuracy and stability.

Suggested Citation

Wang, Hefei, When Talk Ain't Cheap - Costly Information Transmission in Continuous Time (October 20, 2008). Available at SSRN: https://ssrn.com/abstract=1103332 or http://dx.doi.org/10.2139/ssrn.1103332

Hefei Wang (Contact Author)

University of Illinois at Chicago - Department of Finance ( email )

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