Communication and Cooperation in Markets

S. Nageeb Ali, David A. Miller

Research output: Contribution to journalArticlepeer-review

Abstract

Many markets rely on traders truthfully communicating who has cheated in the past and ostracizing those traders from future trade. This paper investigates when truthful communication is incentive compatible. We find that if each side has a myopic incentive to deviate, then communication incentives are satisfied only when the volume of trade is low. By contrast, if only one side has a myopic incentive to deviate, then communication incentives do not constrain the volume of supportable trade. Accordingly, there are strong gains from structuring trade so that one side either moves first or has its cooperation guaranteed by external enforcement.

Original languageEnglish (US)
Pages (from-to)200-217
Number of pages18
JournalAmerican Economic Journal: Microeconomics
Volume14
Issue number4
DOIs
StatePublished - 2022

All Science Journal Classification (ASJC) codes

  • General Economics, Econometrics and Finance

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