Talking heads. Public communication policies in an international economy

Abstract We study a non-cooperative communication game being played by national policymakers in a two-country economy including a beauty-contest argument in the utility function of agents and cross-border technology spillovers. Each policymaker receives some information either solely on the home technology idiosyncratic shock or on both shocks. She has the choice of revealing or not the received signal(s). The equilibrium of the non-cooperative game being played by policymakers may entail transparency or opacity and may be asymmetrical. This crucially depends on the interplay between the size of countries and the strength of the beauty contest motive. From a normative point of view, full or partial opacity may be optimal, showing that the social value of some public information may be negative due to cross-border spillovers. Public information provided by non-cooperative policymakers may be too little or too much.