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Optimal Degree of Public Information Dissemination

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  • Camille Cornand
  • Frank Heinemann

Abstract

Financial markets and macroeconomic environments are often characterised by positive externalities. In these environments, transparency may reduce expected welfare: public announcements serve as focal points for higher-order beliefs and affect agents' behaviour more than justified by their informational contents. Some scholars conclude that reducing public signals' precision or entirely withholding information may improve welfare. This article shows that public information should always be provided with maximum precision but, under certain conditions, not to all agents. Restricting the degree of publicity is a better-suited instrument for preventing the negative welfare effects of public announcements than restrictions on their precision are. Copyright � 2008 The Author(s).

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 118 (2008)
Issue (Month): 528 (04)
Pages: 718-742

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Handle: RePEc:ecj:econjl:v:118:y:2008:i:528:p:718-742

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