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  International Economic ReviewVolume 47 Issue 1, Pages 297 - 325 Published Online: 23 Jan 2006 © 2009 the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association Published on behalf of the University of Pennsylvania and Osaka University
Abstract | References | Full Text: HTML, PDF (Size: 286K) | Related Articles | Citation Tracking  INFORMATIONAL CASCADES ELICIT PRIVATE INFORMATION* Copyright 2006 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association ABSTRACTWe introduce cheap talk in a dynamic investment model with information externalities. We first show how social learning adversely affects the credibility of cheap talk messages. Next, we show how an informational cascade makes truth-telling incentive compatible. A separating equilibrium only exists for high-surplus projects. Both an investment subsidy and an investment tax can increase welfare. The more precise the sender's information, the higher her incentives to truthfully reveal her private information. Received: 2002; First Revision: 2004; | 
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