Cheap talk with an exit option: a model of exit and voice

Abstract

The paper presents a formal model of the exit and voice framework proposed by Hirschman [20]. More specifically, we modify Crawford and Sobel's [10] cheap talk model such that the sender of a cheap talk message has an exit option. We demonstrate that the presence of the exit option may increase the informativeness of cheap talk and improve welfare if the exit option is relatively attractive to the sender and relatively unattractive to the receiver. Moreover, it is verified that perfect information transmission can be approximated in the limit. The results suggest that the exit reinforces the voice in that the credibility of exit increases the informativeness of the voice.

Strategic information transmission with sender’s approval

“…The President can veto the Congress' proposal. Preferences are unimodal, as in Shimizu (2013Shimizu ( , 2017, but the receiver's utility does not depend on the sender's type (as in the current paper, Theorem 8, Section 3.4). More importantly, in Matthews (1989)'s model, the sender's rejection leads to status quo, rather than to exit, and does not necessarily yield a very low utility to the receiver.…”

Strategic information transmission with sender's approval

“…The President can veto the Congress' proposal. Preferences are unimodal, as in Shimizu (2013Shimizu ( , 2017, but the receiver's utility does not depend on the sender's type (as in the current paper, Theorem 8, Section 3.4). More importantly, in Matthews (1989)'s model, the sender's rejection leads to status quo, rather than to exit, and does not necessarily yield a very low utility to the receiver.…”

Information Transmission and Countervailing Biases in Organizations

“…The non-monotonicity of the DM's ex ante expected payoff directly follows from claims (1)-( 5) in Proposition 1 and expression (12) in Section 3. We can compute the ex ante expected payoff of the DM using the above-mentioned results.…”

“…As expression (12) shows, the DM's beliefs determine the DM's ex ante expected payoff, independent of how the agent mixes the two messages given each of θ ∈ {(1, 1), (l, l)}. Hence, we compute the simple P2, where the agent's message strategy is m = 1 w.p.…”

“…Our model is related to communication games, particularly those involving veto stages, where an outside option representing a veto of a proposal can be chosen. In Matthews (1989) [10] and Shimizu (2013 [11], 2017 [12]), the DM selects a proposal based on the agent's message, and the agent can either accept or veto it. Unlike our paper, they permitted the agent, rather than the DM, to choose an outside option.…”