Goodwill in communication

By Aditya V. Kuvalekar, Lipnowski , João Ramos
Journal of Economic Theory | July 2022

Citation

Kuvalekar, A., Lipnowski, E., Ramos, J. (2022). Goodwill in communication. Journal of Economic Theory, 203

Copyright

Journal of Economic Theory, July 2022

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Abstract

An expert advises a decision maker over time. With both the quality of advice and the extent to which it is followed remaining private, the players have limited information with which to discipline each other. Even so, communication in and of itself facilitates cooperation, the relationship evolving based on the expert's advice. We show a formal equivalence between our setting and one of cheap talk with capped money burning, enabling an exact characterization (at fixed discounting) of the expert's attainable payoffs. While an ongoing relationship often helps, our characterization implies that, absent feedback, relational incentives can never restore commitment.