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Imperfect Information and Credible Communication
Author(s) -
Fischer Paul E.,
Stocken Phillip C.
Publication year - 2001
Publication title -
journal of accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 6.767
H-Index - 141
eISSN - 1475-679X
pISSN - 0021-8456
DOI - 10.1111/1475-679x.00006
Subject(s) - communication source , perfect information , incentive , information quality , monotonic function , quality (philosophy) , computer science , cheap talk , equity (law) , imperfect , relation (database) , microeconomics , function (biology) , business , economics , information system , telecommunications , data mining , mathematics , philosophy , linguistics , epistemology , evolutionary biology , biology , law , political science , engineering , mathematical analysis , electrical engineering
This paper analyzes a communication game between a sender and receiver with misaligned incentives. Because of the misalignment, in equilibrium, the sender's privately observed information is not perfectly communicated. We study the relation between the quality of the sender's information and the quality of the information communicated. We establish that the quality of information communicated is a non‐monotonic function of the quality of the sender's information, and it is maximized when the sender has imperfect information. We suggest that our model applies to a setting where an equity research analyst communicates information about a firm's value to investors.