Building on the idea that precision of credit ratings matters for the efficiency of investors' portfolio decisions, the paper analyzes the equilibrium precision of ratings. Our analysis explains why ratings are noisy, exhibit rating inflation and vary across asset classes and over the economic...

Bargaining over two issues as a bundle permits credible cheap talk about their relative importance even when interests are directly opposed on each issue. The resulting communication gains can exceed the gains from bundling previously identified in the monopoly pricing literature. -- bundling ;...