fully revealing equilibrium
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2019 ◽  
Vol 14 (4) ◽  
pp. 1203-1235 ◽  
Author(s):  
Margaret Meyer ◽  
Inés Moreno de Barreda ◽  
Julia Nafziger

This paper studies information transmission in a two‐sender, multidimensional cheap talk setting where there are exogenous constraints on the (convex) feasible set of policies for the receiver, and where the receiver is uncertain about both the directions and the magnitudes of the senders' bias vectors. With the supports of the biases represented by cones, we prove that whenever there exists an equilibrium that fully reveals the state, there exists a robust fully revealing equilibrium (FRE), i.e., one in which small deviations result in only small punishments. We provide a geometric condition—the local deterrence condition—that relates the cones of the biases to the frontier of the policy space, which is necessary and sufficient for the existence of a FRE. We also construct a specific policy rule for the receiver—the min rule—that supports a robust FRE whenever one exists.


2002 ◽  
Vol 17 (4) ◽  
pp. 273-294 ◽  
Author(s):  
Tavy Ronen ◽  
Varda (Lewinstein) Yaari

We challenge the popular view that because of the revelation principle, the research on earnings management must be restricted only to situations in which a truth-telling, fully revealing equilibrium/i> does not exist. After presenting and discussing the revelation principle, we state conditions under which truth-telling equilibria may be dominated by equilibria wherein the message (such as earnings) is managed. The optimal message in an undominated equilibrium may involve either partial suppression of information (omission of some data) or aggregation (summarization of data).


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