Yeung, Timothy (2014) A Cheap-talk Model with Multiple Free-riding Audiences: Reference to Global Environmental Protections. TSE Working Paper, n. 14-503

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Abstract

This paper presents a cheap-talk one-sender-multiple-receiver model in which audiences freeride on each other in the context of global environmental protections. The sender observes the magnitude of damage of emission, and sends the same message simultaneously to all audiences, who then play a game to determine individual emission level. The sender may find it impossible to credibly send the truth when externality is large enough because of the incentive to correct free-riding behavior. If a private club is established for sharing information, the sender’s information with more countries may not be optimal because the sender is less truthful when the club is larger.