Where does the sender’s information come from? Communication with Endogenous Information Acquisition

This paper revisits the Crawford-Sobel game by allowing the sender to choose her information structure endogenously before communicating with the receiver. Information acquisition here is costly, flexible and unobservable. First, I show under a general setup that the sender necessarily communicates all her information to the receiver in any equilibrium; and the sender’s incentive constraint at the information acquisition stage is a sufficient condition for an equilibrium information structure. Later, I impose more structure and characterize the interval partition equilibria. By comparing them with those in Crawford and Sobel (1982), I find that whether communication is more informative in larger or smaller state values depends not only on the players’ preferences, but also on the magnitude of the information acquisition cost. The setup I introduced in this paper can be applied to provide new insights to various problems in organizational design.