DP16831 Communication in the shadow of catastrophe

Author(s): Inga Deimen, Dezso Szalay
Publication Date: December 2021
Keyword(s): authority, delegation, Extreme Events, organizations, risk, Strategic communication
JEL(s): D82, D83
Programme Areas: Organizational Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16831

We study the role of risk in strategic information transmission. We show that an increased likelihood of extreme states â?? heavier tails â?? decreases the amount of information transmission and makes it optimal to alter the mode of decision-making from communication to simple delegation. Moreover, the worst-case losses under communication increase relative to the worst-case losses under delegation when the tails get heavier.