Strategic Information Transmission with Budget Constraint
Ca'Foscari University of Venice, Department of Economics Working Paper ISSN: 1827-3580, 2012
53 Pages Posted: 12 Sep 2012 Last revised: 7 May 2014
Date Written: February 13, 2014
In this paper, I discuss strategic communication when there is limited resource or budget, in the context of water allocation to multiple farmers by the social planner. Each farmer only knows about his exact need of water and asks privately for an amount of water to the social planner. The utility function of each farmer is a quadratic loss utility function and the social planner’s utility is the sum of the utilities of the farmers. In this framework, with limited water, I show that there is no equilibrium where the farmers ask exactly their own need. The equilibria exhibit the standard interval partitions. I introduce the novel phase transition method to identify the exact system of indifference conditions in an equilibrium with given numbers of intervals of farmers for a given budget. From the equilibria computations, I provide new insights into resource allocation and discuss the welfare properties of equilibria.
Keywords: Cheap Talk, Multiple Senders, Budget Constraint
JEL Classification: C72, D82, D83
Suggested Citation: Suggested Citation