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On the Economic Value of Signals

Author

Listed:
  • Bagh Adib

    (Departments of Economics and Mathematics, University of Kentucky, Lexington, USA)

  • Kusunose Yoko

    (Departments of Economics and Agricultural Economics, University of Kentucky, Lexington, USA)

Abstract

We provide sufficient conditions for the economic value of a signal to be a convex function, either locally or globally, of the input required to produce the signal. We also provide conditions under which this input can be interpreted as a measure of the information contained in this signal. We demonstrate that, under certain conditions, information is a very peculiar good that can—globally—show increasing marginal utility. In contrast to the earlier approach used to obtain the classic results on the local lack of concavity of the value of information, our approach allows permits the investigation of concavity (or lack) of the function representing the value of information, without imposing any conditions of differentiability on this function. Our approach also allows us to show that the marginal value of information can be zero even at an informative signal. Finally, we discuss some of the difficulties that can arise in designing price discrimination schemes for selling signals with various levels of quality.

Suggested Citation

  • Bagh Adib & Kusunose Yoko, 2020. "On the Economic Value of Signals," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 20(1), pages 1-19, January.
    • Handle: RePEc:bpj:bejtec:v:20:y:2020:i:1:p:19:n:19
    DOI: 10.1515/bejte-2018-0191
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    Cited by:

    1. Se-Hyuk Kim & James W Mjelde & Tae-Kyun Kim & Choong-Ki Lee & Byunggil Chun, 2023. "Willingness to pay for attributes of Templestay and implications on marginal utility of different meditation forms," Tourism Economics, , vol. 29(4), pages 1100-1120, June.
    2. Maria Kleshnina & Christian Hilbe & Štěpán Šimsa & Krishnendu Chatterjee & Martin A. Nowak, 2023. "The effect of environmental information on evolution of cooperation in stochastic games," Nature Communications, Nature, vol. 14(1), pages 1-11, December.

    More about this item

    Keywords

    value of information; envelope theorem; mutual information; discontinuous demand; price discrimination;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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