Efficient Use of Information and Social Value of Information
This paper analyzes equilibrium and welfare for a tractable class of economies (games) that have externalities, strategic complementarity or substitutability, and heterogeneous information. First, we characterize the equilibrium use of information: complementarity heightens the sensitivity of equilibrium actions to public information, raising aggregate volatility, whereas substitutability heightens the sensitivity to private information, raising cross-sectional dispersion. Next, we define and characterize an efficiency benchmark designed to address whether the equilibrium use of information is optimal from a social perspective; the efficient use of information reflects the social value of aligning choices across agents. Finally, we examine the comparative statics of equilibrium welfare with respect to the information structure; the social value of information is best understood by classifying economies according to the inefficiency, if any, in the equilibrium use of information. We conclude with a few applications, including production externalities, beauty contests, business cycles, and large Cournot and Bertrand games. Copyright The Econometric Society 2007.
Year of publication: |
2007
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Authors: | Angeletos, George-Marios ; Pavan, Alessandro |
Published in: |
Econometrica. - Econometric Society. - Vol. 75.2007, 4, p. 1103-1142
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Publisher: |
Econometric Society |
Saved in:
Saved in favorites
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