Meaningful cheap talk must improve equilibrium payoffs

We generalize Farrell's (1987) idea of coordination by means of cheap talk. We show that if cheap talk is meaningful (in the sense that babbling equil ibria are ruled out) and if there is room for cooperation (namely if there exists at least one pure-strategy equilibrium Pareto superior to the defaul t equilibrium), then cheap talk must increase the equilibrium expected payo ff relative to the play of the game without preplay communication. The resu lt is limited to proper equilibria of the communication game and to games w ith two players. It is shown that. (C) 1999 Elsevier Science B.V. All right s reserved.