Reputational cheap talk: influentialness and welfare

Abstract

A sender communicates private information about a hidden state to a receiver who seeks to match his action to that state. The sender strives to appear informed at the receiver's expense. I characterize informative equilibria under a broad class of signal structures and show that, when they exist, they are essentially unique. I show that informative equilibria can be noninfluential, in which case the receiver does not benefit from communication and relies only on prior information. My main results identify a complementarity that sufficiently precise prior information helps restore influential communication and characterize how the receiver's welfare depends on the quality of prior information. I also characterize how the sender's initial reputation for being informed shapes these results.