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The Welfare Implications of Costly Information Provision

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  • Luca Colombo

    ()
    (DISCE, Università Cattolica)

  • Gianluca Femminis

    ()
    (DISCE, Università Cattolica)

Abstract

We study information acquisition in a framework characterized by strategic complementarity or substitutability. Agents’ actions are based on costly public and private signals, the precisions of which are set by a policy maker and by private agents, respectively. The policy maker – acting as a von Stackelberg leader – takes into account that an increase in the precision of public information reduces the incentives for private information acquisition. The precisions of both the public and private information available to each agent are shown to depend crucially on the degree of strategic complementarity or substitutability. We explore the welfare and policy implications of our results in economies with beauty contests, price setting complementarities, and negative externalities entailing strategic substitutability.

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File URL: http://www.unicatt.it/Istituti/EconomiaFinanza/Quaderni/ief0100.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) in its series DISCE - Quaderni dell'Istituto di Economia e Finanza with number ief0100.

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Length: 47
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:ctc:serie3:ief0100

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Web page: http://www.unicatt.it/Istituti/EconomiaFinanza
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Keywords: Incomplete information; strategic complementarity; strategic substitutability; welfare;

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Cited by:
  1. Giuseppe Mastromatteo, 2011. "H.P. Minsky And Policies To Countervail Crises," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0102, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  2. Giuseppe Mastromatteo, 2011. "The Debate on the Crisis: Recent Reappraisals of the Concept of Functional Finance," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0105, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).

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