Mathias Dewatripont† and Jean Tirole‡ December 7, 2004
The paper develops a theory of communication in which the sender’s and receiver’s motivations and abilities to communicate and process information endogenously determine the communication mode and the transfer of knowledge. In contrast with the economic literature, which focuses on the (mostly costless) transmission of soft and hard information, it models communication as a moral-hazard-in-team problem, in which the sender and receiver select persuasion and message elaboration eﬀorts. The paper shows how strategies and outcomes depend on whether the receiver needs to absorb the content in order to act (executive decision-making) or uses the information only in order to assess the merits of alternative decisions (supervisory decision-making). The model is then shown to provide a rich set of insights concerning: (i) the impact of incentive alignment on communication strategies; (ii) the relative inﬂuence and the complementarity/substitutability between issue-relevant communication and cues (information that relates to the credibility of the sender rather than to the issue at stake); and (iii) the path-dependency of communication. JEL numbers: D8. Keywords: communication, incentives, cues, message evaluation.
We thank Wouter Dessein, Denis Hilton, Canice Prendergast, Armin Schmutzler, Lucy White, two referees and audiences at various seminars and conferences for helpful discussions and comments. † ECARES (Université Libre de Bruxelles), MIT and CEPR. ‡ IDEI and GREMAQ (UMR 5604 CNRS), Toulouse, CERAS (URA 2036 CNRS), Paris, and MIT.
Communication, whether in organizations, personal relationships, politics or public information campaigns, is one of the most complex and strategic activities of human beings. It may have limited eﬀectiveness for two interacting reasons. The ﬁrst obstacle to eﬀectiveness is the lack of congruence between the sender (source, persuader, speaker) and the receiver (recipient, addressee, listener). As many contributions have emphasized, the latter is unlikely to trust the former’ s statement or recommendation if their interests diverge. The second obstacle is also widely recognized, but has not yet been embodied into economic modeling. The acts of formulating and absorbing the content of a communication are privately costly, and so communication is subject to moral hazard in team (à la Holmström, 1982): • As academics know too well, the sender must expand time, attention and other resources
to communicate eﬀectively her knowledge. Because the same message may convey diﬀerent meanings to diﬀerent receivers, the sender must address the receiver’s knowledge (absorptive capacity, language, perspective). Similarly, the message should not be so concise as not to convey the relevant information, but should also not include information that is redundant, or irrelevant or else well-known to the speciﬁc audience, so as not to distract attention or discourage absorption. • Conversely, the receiver must pay attention, decode, understand, and rehearse the acquired knowledge. He must decode the literal meaning, and, like the sender, take the properties of the other side into account in order to make a proper inference of what the intended meaning is. In a nutshell, “it takes two to communicate”. Senders complain that receivers fail to listen or pay attention, and receivers gripe about the senders’ lack of preparation or clarity. Moral hazard in team occurs even when the sender and the receiver form a “team” in the sense of team theory,1 that is when their preferences are perfectly aligned in terms of decision or outcome. Economic theory has ignored the moral-hazard-in-team aspect of communication because it has focused on the two polar cases of soft and hard information. By deﬁnition, soft information cannot be substantiated, and so its validity can never be assessed by the receiver. It...