Strategic transmission of costly information

IT IS OFrEN THE CASE that an individual's decision is at least partly based on information received from another. And when the agents' payoffs depend on both the former's decision and on the latter's information, there is an incentive for the informed individual to attempt to bias the decision maker's decision in his or her favor by strategically manipulating the information transmitted. In a seminal paper, Crawford and Sobel (1982) (hereafter, C/S) study such strategic information transmission in the context of an abstract sender/receiver game. Variants of the Crawford and Sobel model have been applied widely, and as the application varies so often does the interpretation of "type." In some cases, "type" refers to a preference parameter given by Nature-as, for example, in bargaining theory (e.g., Farrell and Gibbons (1989), Matthews (1989)), whereas in other settings-for instance, legislative decision making or expert testimony -"type" refers to more or less technical information concerning how decisions map into final consequences and, as such, is acquired information (e.g., Gilligan and Krehbiel (1987), Milgrom and Roberts (1986)). When the information has to be acquired, it is natural to suppose the acquisition is costly; for otherwise, there is no reason why such information is asymmetrically distributed. So long as the receiver can observe surely-or, at least, accurately infer-whether the sender is informed, and so long as messages are cheap-talk, there is no issue here for strategic information transmission (save whether to become informed at all). However, there are many circumstances when it is inappropri- ate to assume the receiver has such knowledge. One possibility is that a receiver may know that a sender has some relevant informa- tion, but be uncertain of the quality of this information. A second, perhaps more important, possibility is that a receiver is unable to tell whether a (potential) sender is uninformed. Inter alia, this problem constitutes the rationale for "ignorance of the law" being inadmissible as a legal defense (were it admissible, then "informed" miscreants would mimic "uninformed" transgressors); leads voters to be skeptical of politicians claiming ignorance of illegal arms deals; and makes the SEC sensitive to problems in distinguishing insider trading from legitimate good judgement. So there is an intrinsic asymmetry in that it is generally possible for, say, senders to verify possession of at least some information, but it is typically prohibitively difficult to verify any lack of knowledge