Farsighted Cheap Talk in Networks (Abstract)

We develop a model of information aggregation with competing farsighted agents who are concerned over an unobservable event. They have two ways of gaining knowledge on the event. Truthful but imperfect information can be acquired paying a cost. Otherwise, the agents costlessly obtain messages from peers. The messages do not need to be truthful, because the competing agents prefer others to underestimate or overestimate the event. Hence, being a receiver and a sender, each agent should define, which information source to consider and what information to reveal. Moreover, the agents can retransmit received messages, so similar information can be obtained through different sequences of mediators. Unlike previous cheap talk models we allow receiver to reject message, if it upsets her balance between accuracy and informedness. As a result, we revealed a dominance of public over private messages, as audience composition is driven by balance of benefits between the receiver and sender roles. Hence, acquisition costs and audience partition are the main factors of farsighted network formation.

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Information Exchange in Profit Shifting (Abstract)

Multinational enterprises form long value chains linking subsidiaries and affiliates in many countries. Some governments provide tax preferences which may distort the rightful profit distribution over the value chains. This profit shifting is elusive for the involved countries because no government has a complete view of the multinationals' business activity. Hence, intergovernmental communication becomes a chief concern for counteraction to harmful tax competition and aggressive tax planning. To investigate the issue we developed a novel sequential no-action Bayesian persuasion to model intergovernmental information exchange for tax matters. This communication model reveals how information asymmetry governs global profit allocation and naturally highlights the role of offshores in covering up aggressive tax planning. We explain a mechanism that connects quality of communication with tax policy and taxpayers' ability to misreport profit. The main outcome is that identically informed governments and high misreport costs can impede profit shifting.

paper is available on SSRN

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Bayesian Persuasion Mediating Cheap Talk (Abstract)

We examine a model of sequential communication with a receiver acting upon two sources of information. One is a cheap-talk sender who initially obtains information but reveals it imprecisely. The other is a mediator who expands on the revealed information using Bayesian persuasion. We prove that Bayesian persuasion makes the preceding cheap talk more informative if the sender benefits from the receiver's action. This result holds for any sender's utility function with a unique maximum. We also define a condition for collusion between the sender and the mediator, as well as characterise the cheap-talk partition for both direct and mediated cases. The model and results are then illustrated with a trade deal on an item appraised by a third party.

paper is available on SSRN

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