When Talk Ain't Cheap - Costly Information Transmission in Continuous Time
26 Pages Posted: 10 Mar 2008 Last revised: 4 Nov 2008
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.
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