Strategic Information Transmission with Budget Constraint
Posted: 3 Oct 2012 Last revised: 29 Oct 2013
Date Written: September 25, 2013
In this paper, I discuss strategic communication that arises during the allocation of a limited budget or resource, in the context of water allocation to two farmers by the social planner. Each farmer’s need of water is bounded and only he knows about his exact need of water. Each farmer asks privately for an amount of water to the social planner and then the social planner allocates water to the farmers. The utility function of each farmer is a quadratic loss utility function where more water than the need causes flood or less water causes drought. The social planner is a utilitarian and her utility is the sum of the utilities of the two farmers. In this framework, when the amount of water is limited, I show that there is no equilibrium where both the farmers ask exactly their own need. The equilibria exhibit the standard interval partitions. I introduce the novel phase transition method to compute equilibria. I compare my results to the existing literature and there are some results that are new in the literature which requires further investigation.
Keywords: cheap talk, multiple senders, budget constraint
JEL Classification: C72, D82, D83
Suggested Citation: Suggested Citation