The value of information with heterogeneous agents and partially revealing prices
AbstractThis paper studies how the arrival of information affects welfare in a general equilibrium exchange economy with incomplete and differential information. It considers a setup in which agents differ in their attitudes toward risk. This introduces gains from trade. In equilibrium, the information sets differ across agents, i.e., they hold heterogeneous beliefs. For certain structures of primitives, the latter introduces an adverse effect on welfare. In this case, the arrival of information has opposite effects: on the one hand it weakens the adverse effect on trade, and on the other hand it strengthens the Hirshleifer effect. The first effect fosters and the second one discourages risk-sharing trades. When the first effect dominates, welfare increases upon the arrival of more precise information.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 05-06.
Date of creation: 2005
Date of revision:
Other versions of this item:
- Juan Hatchondo, 2004. "The value of information with heterogeneous agents and partially revealing prices," Econometric Society 2004 North American Summer Meetings 175, Econometric Society.
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-12-01 (All new papers)
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