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Optimal dynamic public communication

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  • Marcello Miccoli

    () (Bank of Italy)

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    Abstract

    This paper builds a dynamic model of the information flow between partially informed financial institutions and a public agency. The financial institutions decide how to allocate their portfolio between a risk-free technology with a known payoff and a risky technology whose payoff is unknown. The public agency learns about the value of the unknown payoff by observing with measurement error the actions of the financial institutions and decides whether to communicate the information at the agency's disposal. The paper characterizes the optimal public communication plan and shows that full transparency (taken as the release of information whenever it is collected) is not always optimal. Instead, optimal plans involve delayed communication, the amount of delay depending on the precision of private information and the size of the agency's measurement error. The explanation of the result lies in the collection process of public information: while releasing information improves the welfare of the agents, it also decreases the informational content of their actions, hampering the agency's learning and reducing the benefits of future public communication.

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    File URL: http://www.bancaditalia.it/pubblicazioni/econo/temidi/td12/td856_12/en_td856/en_tema_856.pdf
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    Bibliographic Info

    Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 856.

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    Date of creation: Feb 2012
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    Handle: RePEc:bdi:wptemi:td_856_12

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    Web page: http://www.bancaditalia.it
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    Related research

    Keywords: value of information; learning; pubblic communication.;

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    1. Burguet, R. & Vives, X., 1996. "Social Learning and Costly Information Acquisition," UFAE and IAE Working Papers 323.96, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    2. Sandra Gomes & Pascal Jacquinot & Matthias Mohr & Massimiliano Pisani, 2011. "Structural reforms and macroeconomic performance in the euro area countries: a model-based assessment," Temi di discussione (Economic working papers) 830, Bank of Italy, Economic Research and International Relations Area.
    3. Amador, Manuel & Weill, Pierre-Olivier, 2006. "Learning from Private and Public Observation of Other's Actions," MPRA Paper 109, University Library of Munich, Germany.
    4. Pierre Gosselin & Aileen Lotz & Charles Wyplosz, 2008. "The Expected Interest Rate Path: Alignment of Expectations vs. Creative Opacity," International Journal of Central Banking, International Journal of Central Banking, vol. 4(3), pages 145-185, September.
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