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Can comparative statements be credible even when absolute statements are not? For instance, can a professor credibly rank different students for a prospective employer even if she has an incentive to exaggerate the merits of each student? Or can an analyst credibly rank different stocks even if the client would be dubious about a recommendation to buy any one of them? We examine such problems in a multidimensional sender-receiver game where the sender has private information about multiple variables. We show that ordinal cheap talk, in which the variables are completely ordered by value or grouped into categories by value, can be credible even when interests are too opposed to support communication along any single dimension. Ordinal cheap talk is credible because it reveals both favorable and unfavorable information at the same time, thereby precluding any possibility of exaggeration. The communication gains from ordinal cheap talk can be substantial with only a couple of dimensions, and the payoffs from a complete ordering are asymptotically equivalent to full revelation as the number of variables becomes large. However, in some circumstances the sender can do better through a partial ordering that categorizes variables. Compared to other forms of cheap talk, ordinal cheap talk is exceedingly simple in that the sender only makes straightforward, comparative statements.

Cahier de Recherche du Groupe HEC Paris, n° 788; In a matching model of firm formation with moral hazard, we characterize the equilibrium for economies with scarcity of capital and study the effects of redistributive taxation. We give necessary and sufficient conditions determining the equilibrium matching patterns, payoffs and interest rate. These depend only on aggregate wealth and the median wealth relative to the active population, compared to setup costs and technological parameters. We confirm previous results (see [2]), showing that monotonic job specialization typically obtains when incentives are asymmetric within firms. Redistributive taxation now propagates its effects through the asset market and there may wealth nonmonotonic interest groups over median changes.

Bargaining over two issues as a bundle permits credible cheap talk about their relative importance even when interests are directly opposed on each issue. The resulting communication gains can exceed the gains from bundling previously identified in the monopoly pricing literature.

Sellers benefit on average from revealing information about their goods to buyers, but the incentive to exaggerate undermines the credibility of seller statements. When multiple goods are being auctioned, we show that ordinal cheap talk, which reveals a complete or partial ordering of the different goods by value, can be credible. Ordinal statements are not susceptible to exaggeration because they simultaneously reveal favorable information about some goods and unfavorable information about other goods. Any informative ordering increases revenues in accordance with the linkage principle, and the complete ordering is asymptotically revenue-equivalent to full revelation as the number of goods becomes large. These results provide a new explanation in addition to bundling, versioning, and complementarities for how a seller benefits from the sale of multiple goods.

Should an informed seller of multiple goods sell the best goods first to make a favorable impression on buyers, or instead hold back on the best goods until buyers have learned more from earlier sales? To help answer this question we consider the sequential auction of two goods by a seller with private information about their values. We find that the seller's sequencing strategy endogenously generates correlation in the values of the goods across periods, thereby giving the seller an incentive to impress buyers by leading with the better good. This impression effect implies that selling the better good first is the unique equilibrium in many situations, and that selling the better good last is never a unique equilibrium. Nevertheless, if the seller could commit to a sequencing strategy, revenues would often be higher from waiting to sell the better good last. Either sequencing strategy reveals the seller's ranking of the goods and thereby, due to the linkage principle, generates higher revenues than either randomly selling the goods or selling them simultaneously.

Cahier de Recherche du Groupe HEC Paris, n° 683; We study competitive equilibria with moral hazard in economies with aggregate risk and where trading occurs with an incomplete set of financial assets. The main conclusion of the paper is that, contrary to the individual risk economies, moral hazard is compatible with trading in competitive linear financial contracts, and gives rise to no manipulation problem. We establish existence of nonmanipulable equilibria provided that there are no relative price effects (e.g. a one-commodity economy), and that ...nancial markets display nonlinearly homogeneous payoffs (e.g., nominal), and are sufficiently incomplete. Finally, we justify the linear contract as the optimal pricing schedule in a specific trading game with an auctioneer.