Communication in the shadow of catastrophe

Abstract

We perform distributional comparative statics in a cheap talk model of adaptation. Receiver borne adaptation costs drive a wedge between the objectives of sender and receiver that is increasing in the magnitude of adaptation. We allow for infinite supports with infinite disagreement at the extremes and compare communication to unconstrained delegation. We study increases in risk that arise from transformations of the state variable. We find that linear transformations (implying increases in variance) decrease communication and delegation payoffs but do not change their ranking. By contrast, increasing, convex transformations (implying increases in tail risk) decrease the communication payoff relative to the delegation payoff. Our finding extends to the comparison of distributions with thin versus heavy tails.