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When are signals complements or substitutes?

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Author Info
Tilman Borgers ()
Angel Hernando-Veciana ()
Daniel Krahmer ()

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Abstract

The paper introduces a notion of complementarity (substitutability) of two signals which requires that in all decision problems each signal becomes more (less) valuable when the other signal becomes available. We provide a general characterization which relates complementarity and substitutability to a Blackwell-comparison of two auxiliary signals. In a special setting with a binary state space and binary, symmetric signals, we find an explicit characterization that permits an intuitive interpretation of complementarity and substitutability. We demonstrate how these conditions extend to the general case. Finally, we study implications of complementarity and substitutability for information acquisition and in a second price auction.

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Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we072111.

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Date of creation: Mar 2007
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Handle: RePEc:cte:werepe:we072111

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This page was last updated on 2009-11-1.


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