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Efficient Use of Information and Social Value of Information

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Author Info
George-Marios Angeletos
Alessandro Pavan

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Abstract

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.

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File URL: http://hdl.handle.net/10.1111/j.1468-0262.2007.00783.x
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Publisher Info
Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 75 (2007)
Issue (Month): 4 (07)
Pages: 1103-1142
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Handle: RePEc:ecm:emetrp:v:75:y:2007:i:4:p:1103-1142

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  1. Bruno, Randolph Luca, 2008. "Rule of Law, Institutional Quality and Information," IZA Discussion Papers 3497, Institute for the Study of Labor (IZA). [Downloadable!]
  2. Bartosz Maćkowiak & Mirko Wiederholt, 2009. "Optimal sticky prices under rational inattention," Working Paper Series 1009, European Central Bank. [Downloadable!]
    Other versions:
  3. Antonio Jimenez-Martinez, . "Strategic Information Acquisition in Networked Groups with "Informational Spillovers"," School of Economics Working Papers EC200801, Universidad de Guanajuato. [Downloadable!]
  4. Vives, Xavier, 2008. "Strategic supply function competition with private information," IESE Research Papers D/774, IESE Business School. [Downloadable!]
    Other versions:
  5. Luca Colombo & Gianluca Femminis, 2007. "The Social Value of Public Information with Costly Information Acquisition," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0073, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE). [Downloadable!]
    Other versions:
  6. David P. Myatt & Chris Wallace, 2008. "On the Sources and Value of Information: Public Announcements and Macroeconomic Performance," Economics Series Working Papers 411, University of Oxford, Department of Economics. [Downloadable!]
  7. Maria Demertzis & Nicola Viegi, 2008. "Inflation Targets as Focal Points," International Journal of Central Banking, International Journal of Central Banking, vol. 4(1), pages 55-87, March. [Downloadable!]
    Other versions:
  8. David P. Myatt & Chris Wallace, 2009. "Endogenous Information Acquisition in Coordination Games," Economics Series Working Papers 445, University of Oxford, Department of Economics. [Downloadable!]
  9. Romain Baeriswyl & Camille Cornand, 2007. "Monetary policy and its informative value," Proceedings, Federal Reserve Bank of San Francisco. [Downloadable!]
  10. Hellwig, Christian & Veldkamp, Laura, 2007. "Knowing What Others Know: Coordination Motives in Information Acquisition," CEPR Discussion Papers 6506, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  11. Alejandro Tatsuo Moreno, . "Group Fairness and Game Theory," School of Economics Working Papers EC200702, Universidad de Guanajuato. [Downloadable!]
  12. R. L. Bruno, 2008. "Rule of Law, Institutional Quality and Information," Working Papers 634, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
  13. George-Marios Angeletos & Alessandro Pavan, 2006. "Socially Optimal Coordination: Characterization and Policy Implications," NBER Working Papers 12778, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  14. George-Marios Angeletos & Jennifer La'O, 2009. "Incomplete Information, Higher-Order Beliefs and Price Inertia," NBER Working Papers 15003, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Stephen Morris & Hyun Song Shin, 2007. "Coordinating Expectations in Monetary Policy," Levine's Bibliography 321307000000000956, UCLA Department of Economics. [Downloadable!]
  16. Gabriel Desgranges & Celine Rochon, 2008. "Conformism, Public News and Market Effciency," OFRC Working Papers Series 2008fe16, Oxford Financial Research Centre. [Downloadable!]
  17. George-Marios Angeletos & Alessandro Pavan, 2007. "Policy with Dispersed Information," NBER Working Papers 13590, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  18. Christian A. Stoltenberg & Vadym Lepetyuk, 2009. "Policy announcements and welfare," Working Papers. Serie AD 2009-13, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
  19. Leonardo Boncinelli, 2007. "Global vs. Local Information," Department of Economics University of Siena 520, Department of Economics, University of Siena. [Downloadable!]
  20. George-Marios Angeletos & Guido Lorenzoni & Alessandro Pavan, 2007. "Wall Street and Silicon Valley: A Delicate Interaction," NBER Working Papers 13475, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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