Cheap Talk With Endogenous Conflict of Interest

In a cheap‐talk setting where the conflict of interest between sender and receiver is determined endogenously by the choice of parameters θ i for each agent i , conditions are provided that determine the sign of each agent's inverse demand for θ without assuming that the most informative equilibrium will necessarily be played in the cheap talk game. For two popular functional forms of payoffs, we derive analytically tractable approximations for agent i 's demand for θ . In an application where the θi 's are purchased on a competitive market, we provide conditions for a competitive equilibrium to feature maximal information transmission. In a principal–agent application where the agent's θ is set by the principal, our results show that information transmission will be partial. We consider extensions where: (1) the θ 's are acquired covertly rather than overtly and (2) the θ 's are traded after the sender has received the information.