Working Paper: NBER ID: w13370
Authors: Jeremy C. Stein
Abstract: I develop a model of bilateral conversations in which players may honestly exchange ideas with their competitors. The key to incentive compatibility is a strong form of complementarity in the information structure: a player can only generate a useful new insight on a given topic if he has access to his counterpart's previous thoughts on the topic. I then embed this model into a linear social network in which player A first can have a conversation with player B, then player B can have a conversation with player C, and so on. I show that relatively underdeveloped ideas can travel long distances over the network and thus be shared by many agents. More valuable ideas, by contrast, tend to remain localized among small groups of agents.
Keywords: Information Exchange; Social Networks; Competitors; Bilateral Conversations; Incentives
JEL Codes: D82; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| player A tells the truth (C72) | player B develops a further idea (C73) |
| player B develops a further idea (C73) | player A can communicate back to player B (C73) |
| player A tells the truth (C72) | potential for generating new insights (O36) |
| player A lies (C72) | disadvantages player B (C73) |
| player A lies (C72) | prevents generation of subsequent ideas (O36) |
| strong complementarity in information structure (D10) | incentive-compatible information exchange (D82) |
| underdeveloped ideas travel long distances (O18) | more valuable ideas remain localized (D46) |