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Information Percolation with Equilibrium Search Dynamics

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Author Info

  • Darrell DUFFIE

    (Stanford University)

  • Semyon MALAMUD

    (ETH Zurich and Swiss Finance Institute)

  • Gustavo MANSO

    (MIT)

Abstract

We solve for the equilibrium dynamics of information sharing in a large population. Each agent is endowed with signals regarding the likely outcome of a random variable of common concern. Individuals choose the effort with which they search for others from whom they can gather additional information. When two agents meet, they share their information. The information gathered is further shared at subsequent meetings, and so on. Equilibria exist in which agents search maximally until they acquire sufficient information precision, and then minimally. A tax whose proceeds are used to subsidize the costs of search improves information sharing and can in some cases increase welfare. On the other hand,endowing agents with public signals reduces information sharing and can in some cases decrease welfare.

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Bibliographic Info

Paper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 09-02.

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Length: 61 pages
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Handle: RePEc:chf:rpseri:rp0902

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Web page: http://www.SwissFinanceInstitute.ch
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Related research

Keywords: search; matching; equilibrium; information; percolation;

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Cited by:
  1. Duffie, Darrell & Malamud, Semyon & Manso, Gustavo, 2009. "The Relative Contributions of Private Information Sharing and Public Information Releases to Information Aggregation," Research Papers 2023, Stanford University, Graduate School of Business.
  2. Semyon Malamud & Marzena Rostek, 2012. "Decentralized Exchange," Working Papers 12-18, NET Institute.
  3. Dimitri Vayanos & Jiang Wang, 2012. "Market Liquidity - Theory and Empirical Evidence," FMG Discussion Papers dp709, Financial Markets Group.
  4. Rajkamal Iyer & Asim Ijaz Khwaja & Erzo F.P. Luttmer & Kelly Shue, 2009. "Screening Peers Softly: Inferring the Quality of Small Borrowers," NBER Working Papers 15242, National Bureau of Economic Research, Inc.
  5. Bimpikis, Kostas & Ozdaglar, Asuman & Acemoglu, Daron, 2014. "Dynamics of information exchange in endogenous social networks," Theoretical Economics, Econometric Society, vol. 9(1), January.
  6. Alain B\'elanger & Gaston Giroux, 2012. "Information Percolation: Some General Cases with an Application to Econophysics," Papers 1202.5251, arXiv.org.
  7. Schultz, Paul, 2012. "The market for new issues of municipal bonds: The roles of transparency and limited access to retail investors," Journal of Financial Economics, Elsevier, vol. 106(3), pages 492-512.
  8. Mikhail Golosov & Aleh Tsyvinski & Guido Lorenzoni, 2008. "Decentralized trading with private information," 2008 Meeting Papers 391, Society for Economic Dynamics.
  9. Andrew Atkeson & Andrea L. Eisfeldt & Pierre-Olivier Weill, 2013. "The market for OTC derivatives," Staff Report 479, Federal Reserve Bank of Minneapolis.
  10. Darrell Duffie & Semyon Malamud & Gustavo Manso, 2011. "Information Percolation in Segmented Markets," NBER Working Papers 17295, National Bureau of Economic Research, Inc.
  11. Marc de Kamps & Daniel Ladley & Aistis Simaitis, 2012. "Heterogeneous Beliefs in Over-The-Counter Markets," Discussion Papers in Economics 13/03, Department of Economics, University of Leicester, revised Sep 2013.
  12. Manela, Asaf, 2014. "The value of diffusing information," Journal of Financial Economics, Elsevier, vol. 111(1), pages 181-199.

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