Advanced Search
MyIDEAS: Login to save this paper or follow this series

Efficiency and Welfare with Complementarities and Asymmetric Information

Contents:

Author Info

  • George-Marios Angeletos
  • Alessandro Pavan

Abstract

This paper examines equilibrium and welfare in a tractable class of economies with externalities, strategic complementarity or substitutability, and incomplete information. In equilibrium, complementarity amplifies aggregate volatility by increasing the sensitivity of actions to public information; substitutability raises cross-sectional dispersion by increasing the sensitivity to private information. To address whether these effects are undesirable from a welfare perspective, we characterize the socially optimal degree of coordination and the efficient use of information. We show how efficient allocations depend on the primitives of the environment, how they compare to equilibrium, and how they can be understood in terms of a social trade-off between volatility and dispersion. We next examine the social value of information in equilibrium. When the equilibrium is efficient, welfare necessarily increases with the accuracy of information; and it increases [decreases] with the extent to which information is common if and only if agents' actions are strategic complements [substitutes]. When the equilibrium is inefficient, additional effects emerge as information affects the gap between equilibrium and efficient allocations. We conclude with a few applications, including production externalities, Keynesian frictions, inefficient fluctuations, and efficient market competition.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w11826.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11826.

as in new window
Length:
Date of creation: Dec 2005
Date of revision:
Handle: RePEc:nbr:nberwo:11826

Note: EFG
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Jess Benhabib & Roger E.A. Farmer, 1992. "Indeterminacy and Increasing Returns," UCLA Economics Working Papers, UCLA Department of Economics 646, UCLA Department of Economics.
  2. Mauro Roca, 2010. "Transparency and Monetary Policy with Imperfect Common Knowledge," IMF Working Papers, International Monetary Fund 10/91, International Monetary Fund.
  3. Iván Werning & George-Marios Angeletos, 2006. "Crises and Prices: Information Aggregation, Multiplicity, and Volatility," American Economic Review, American Economic Association, American Economic Association, vol. 96(5), pages 1720-1736, December.
  4. Raith, Michael, 1996. "A General Model of Information Sharing in Oligopoly," Journal of Economic Theory, Elsevier, Elsevier, vol. 71(1), pages 260-288, October.
  5. Andrew Atkeson & Patrick J. Kehoe, 2001. "The advantage of transparent instruments of monetary policy," Working Papers, Federal Reserve Bank of Minneapolis 614, Federal Reserve Bank of Minneapolis.
  6. Daron Acemoglu, 1992. "Learning about Others Actions and the Investment Accelerator," CEP Discussion Papers, Centre for Economic Performance, LSE dp0072, Centre for Economic Performance, LSE.
  7. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 103(3), pages 441-63, August.
  8. Camille Cornand & Frank Heinemann, 2004. "Optimal Degree of Public Information Dissemination," CESifo Working Paper Series, CESifo Group Munich 1353, CESifo Group Munich.
  9. Michael Woodford, 2005. "Central Bank Communication and Policy Effectiveness," NBER Working Papers, National Bureau of Economic Research, Inc 11898, National Bureau of Economic Research, Inc.
  10. Petra M. Geraats, 2002. "Central Bank Transparency," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 112(483), pages 532-565, November.
  11. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, American Economic Association, vol. 92(5), pages 1521-1534, December.
  12. Matsuyama, Kiminori, 1992. "A Simple Model of Sectoral Adjustment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 59(2), pages 375-88, April.
  13. Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, Econometric Society, vol. 54(5), pages 1099-1128, September.
  14. Hirshleifer, Jack, 1971. "The Private and Social Value of Information and the Reward to Inventive Activity," American Economic Review, American Economic Association, American Economic Association, vol. 61(4), pages 561-74, September.
  15. Grossman, Sanford J, 1981. "An Introduction to the Theory of Rational Expectations under Asymmetric Information," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 48(4), pages 541-59, October.
  16. Stephen Morris & Hyun Song Shin, 2005. "Central Bank Transparency and the Signal Value of Prices," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, Economic Studies Program, The Brookings Institution, vol. 36(2), pages 1-66.
  17. George-Marios Angeletos & Alessandro Pavan, 2004. "Transparency of Information and Coordination in Economies with Investment Complementarities," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1494, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  18. Laffont, Jean-Jacques M, 1985. "On the Welfare Analysis of Rational Expectations Equilibria with Asymmetric Information," Econometrica, Econometric Society, Econometric Society, vol. 53(1), pages 1-29, January.
  19. Canzoneri, Matthew B, 1985. "Monetary Policy Games and the Role of Private Information," American Economic Review, American Economic Association, American Economic Association, vol. 75(5), pages 1056-70, December.
  20. Holmstrom, Bengt & Myerson, Roger B, 1983. "Efficient and Durable Decision Rules with Incomplete Information," Econometrica, Econometric Society, Econometric Society, vol. 51(6), pages 1799-819, November.
  21. Bryant, John, 1983. "A Simple Rational Expectations Keynes-Type Model," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 98(3), pages 525-28, August.
  22. Vives, Xavier, 1988. "Aggregation of Information in Large Cournot Markets," Econometrica, Econometric Society, Econometric Society, vol. 56(4), pages 851-76, July.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:11826. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.