Dangerous Talk (JMP)
Abstract: I explore continuous-time partnerships of coworker pairs in an organization. Each has a productivity-irrelevant hidden type, either normative or rogue. As the partnership proceeds, exogenous public signals gradually reveal their types to each other. Meanwhile, the organization both incentivizes calling out rogue types, and punishes false accusations. Opportunities to exit the partnership or make an accusation periodically arrive randomly, and are privately observed — thus making the partnership’s very survival an endogenous source of information. A symmetric Markov equilibrium exists, and both types are sometimes called out if stakes are high enough.
I fully solve for the unique equilibrium with one-sided incomplete information (say, an outsider entering a purely normative organization), and show how false accusations and productive losses respond to organizational incentives. In the general case with two-sided incomplete information, the equilibrium is unique when exit opportunities are sufficiently rare. Here, I solve the model numerically, and find that the earlier comparative statics predictions are robust.
This analysis sheds light on past witch hunts such as during the Red Scare or the Lavender Scare of the 1950s.