Archishman Chakraborty

Comparative Cheap Talk

When are comparative statements credible? For instance, when can a professor rank different students for an employer, or a stock analyst rank different stocks for a client? We show that simple complementarity conditions ensure that an expert with private information about multiple issues can credibly rank the issues for a decision maker. By restricting the expert’s ability to exaggerate, multidimensional cheap talk of this form permits communication when it would not be credible in a single dimension. The communication gains can be substantial with even a couple of issues, and the complete ranking is asymptotically equivalent to full revelation as the number of issues becomes large. Nevertheless, partial rankings are sometimes more credible and/or more profitable for the expert than the complete ranking. We confirm the robustness of comparative cheap talk to asymmetries that are not too large. Moreover, we show that for a sufficiently large number of independent issues there are always some issues sufficiently symmetric to permit influential cheap talk.

Two-sided matching with interdependent values

We introduce and study two-sided matching with incomplete information and interdependent valuations on one side of the market. An example of such a setting is a matching market between colleges and students in which colleges receive partially informative signals about students. Stability in such markets depends on the amount of information about matchings available to colleges. When colleges observe the entire matching, a stable matching mechanism does not generally exist. When colleges observe only their own matches, a stable mechanism exists if students have identical preferences over colleges, but may not exist if students have different preferences.

Occupational choice, incentives and wealth distribution☆

Abstract We consider a model of occupational choice in large economies where individuals differ in their wealth endowment. Individuals can remain self-employed or engage in productive matches with another individual, i.e., form firms. Matches are subject to a moral hazard problem with limited liability. The division of the gains from such matches is determined by competitive forces. When the incentive problem is asymmetric, matches are typically wealth-heterogeneous, with richer individuals choosing the occupation for which incentives are more important. The utilities attained within a match depend on the wealth distribution and changes in the latter give rise to ‘trickle down’ effects.

Cheap Talk Comparisons in Multi-issue Bargaining

Bargaining over two issues as a bundle permits credible cheap talk about their relative importance even when interests are directly opposed on each issue. The resulting communication gains can exceed the gains from bundling previously identified in the monopoly pricing literature.

Authority, Consensus and Governance

We look for necessary properties of shareholder-value maximizing corporate boards when shareholders face a trade-obetween improving information sharing between the board and management and reducing distortions in decision-making arising out of managerial agency. We draw a distinction between the alignment of preferences of the board with management (which aects information ‡ows) and the allocation of authority to the board or management (which aects ex-post decisions). We show that it is in general suboptimal to allocate authority to management. Authority should be held by a supervisory board that may be imperfectly aligned with both shareholders and management. Indeed, even when management has captured all au- thority and the board only has an advisory role, the optimal board may be designed to withold information from management. An optimal advisory board must however be su¢ ciently aligned with management in order to create ex-post consensus and ensure authority is irrelevant. Given optimal board alignment, the value of the boards authority equals the cost of requiring consen- sus. Shareholders may hold ultimate decision-making authority within an optimal supervisory board without any loss in welfare and in many cases this is strictly optimal.

Persuasive Puffery

Sellers often make claims about product strengths without providing evidence. Even though such claims are mere puffery, we show that they can be credible because talking up any one strength comes at the implicit trade-off of not talking up another potential strength. Puffery pulls in some buyers who value product attributes that are talked up or emphasized while pushing away other buyers who infer that the attributes they value are relative weaknesses. When the initial probability of making a sale is low, there are more potential buyers to pull in than to push away, so puffery is persuasive overall. This persuasiveness requires that buyers have some privacy about their preferences so that the seller does not completely pander to them. More generally, the results show how comparative cheap talk by an expert to a decision maker can be credible and persuasive in standard discrete choice models used throughout marketing, economics, and other disciplines.

Ordinal Cheap Talk in Common Value Auctions

Sellers benefit on average from revealing information about their goods to buyers, but the incentive to exaggerate undermines the credibility of seller statements. When multiple goods are being auctioned, we show that ordinal cheap talk, which reveals a complete or partial ordering of the different goods by value, can be credible. Ordinal statements are not susceptible to exaggeration because they simultaneously reveal favorable information about some goods and unfavorable information about other goods. Any informative ordering increases revenues in accordance with the linkage principle, and the complete ordering is asymptotically revenue-equivalent to full revelation as the number of goods becomes large. These results provide a new explanation in addition to bundling, versioning, and complementarities for how a seller benefits from the sale of multiple goods.

Auctions with Ceilings

In symmetric common value auctions where bidders differ ex-post in information quality, a seller may benefit from imposing a ceiling on allowable bids. By reducing the winners curse facing poorly informed bidders, a ceiling encourages them to bid aggressively. This may reduce information rents earned by better informed bidders, yielding the seller higher expected revenues compared to selling the object in a standard ascending auction or at a fixed posted price. Such a ceiling may be explicit (a firm commitment not to accept bids above the ceiling) or implicit (a credible threat not to honor the outcome if anyone bids higher than the ceiling). Either situation can be interpreted as one where the object is offered for sale at a fixed price or the best offer; or one where the seller uses an auction but modifies the object by contractually specifying a right to buy back the object from the winner.