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Limited Attention as the Scarce Resource in an Information-Rich Economy

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  • Falkinger, Josef

    ()
    (University of Zurich)

Abstract

This paper uses basic empirical facts from attention and perception psychology for a behavioral approach to equilibrium analysis at the industry and the macroeconomic level. The paper endogenously determines whether an economy is information-rich and whether scarcity of attention complements economic scarcity. A conventional economic equilibrium results if subjects have free attention capacity. At the positive level, the impacts of IT-progress, international integration and media on equilibrium diversity and level of attention-seeking activities are shown. At the normative level, welfare, efficiency and optimal policy interventions are characterized. Finally, behavioral effects of intensified attention-seeking on market power, sectoral economic structure and work-leisure choice are considered.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1538.

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Length: 51 pages
Date of creation: Mar 2005
Date of revision:
Publication status: published in: Economic Journal, Vol. 118, 2008, 1596-1620
Handle: RePEc:iza:izadps:dp1538

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Related research

Keywords: media; information-rich economies; limited attention; diversity; behavioral equilibrium analysis;

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References

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  1. Ricardo Reis, 2004. "Inattentive Consumers," NBER Working Papers 10883, National Bureau of Economic Research, Inc.
  2. Arjo Klamer & Hendrik P. van Dalen, 2001. "Attention and the Art of Scientific Publishing," Tinbergen Institute Discussion Papers 01-022/1, Tinbergen Institute.
  3. Xavier Gabaix & David Laibson, 2002. "The 6D Bias and the Equity-Premium Puzzle," NBER Chapters, in: NBER Macroeconomics Annual 2001, Volume 16, pages 257-330 National Bureau of Economic Research, Inc.
  4. Hirshleifer, David & Teoh, Siew Hong, 2003. "Limited attention, information disclosure, and financial reporting," Journal of Accounting and Economics, Elsevier, vol. 36(1-3), pages 337-386, December.
  5. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  6. Reis, Ricardo, 2005. "Inattentive Producers," CEPR Discussion Papers 5393, C.E.P.R. Discussion Papers.
  7. Shyam NMI Sunder & Matthew A. Cronin & Robert E. Kraut & James Morris & Rahul Telang, 2002. "Markets for Attention: Will Postage for Email Help?," Yale School of Management Working Papers ysm301, Yale School of Management.
  8. Gabaix, Xavier & Laibson, David Isaac & Moloche, Guillermo & Stephen, Weinberg, 2003. "The allocation of attention: theory and evidence," MPRA Paper 47339, University Library of Munich, Germany.
  9. Bryan Caplan & Tyler Cowen, 2004. "Do We Underestimate the Benefits of Cultural Competition?," American Economic Review, American Economic Association, vol. 94(2), pages 402-407, May.
  10. Falkinger, Josef, 2007. "Attention economies," Journal of Economic Theory, Elsevier, vol. 133(1), pages 266-294, March.
  11. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
  12. Hirshleifer, David & Lim, Sonya S. & Teoh, Siew Hong, 2004. "Disclosure to a Credulous Audience: The Role of Limited Attention," MPRA Paper 5198, University Library of Munich, Germany.
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Citations

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Cited by:
  1. Leif Brandes & Egon Franck & Philipp Theiler, 2013. "The group size and loyalty of football fans: a two-stage estimation procedure to compare customer potentials across teams," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 176(2), pages 347-369, 02.
  2. Josef Falkinger, 2007. "Distribution and Use of Knowledge under the “Laws of the Web”," CESifo Working Paper Series 2154, CESifo Group Munich.
  3. Josef Falkinger, 2008. "A welfare analysis of "junk" information and spam filters," SOI - Working Papers 0811, Socioeconomic Institute - University of Zurich.
  4. Roy Clemons, 2010. "Do external sources generate greater investor awareness that can affect a firm's value and cost of capital?," Review of Accounting and Finance, Emerald Group Publishing, vol. 9(4), pages 382 - 394, November.
  5. Andreas M. Hefti, 2011. "Attention competition," ECON - Working Papers 028, Department of Economics - University of Zurich.
  6. Huberman, Bernardo & Wu, Fang, 2006. "Comparative Advante and Efficient Advertising in the Attention Economy," MPRA Paper 928, University Library of Munich, Germany.

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