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Transparency and Costly Information Acquisition

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  • Ryan A Chahrour

    (Columbia University)

Abstract

I study the choice of economic transparency in a heterogeneous-information model where agents must pay a cost to observe the announcements of an information authority. The authority chooses transparency by selecting the number of signals regarding an aggregate state to make public, and agents respond by choosing how many of those signals to observe. I show that, when agents seek to coordinate their actions, the amount of information actually gathered by agents is non-monotonic in the transparency of the authority. The optimal degree of transparency is always interior and depends on the strength of complementarities in the economy. Transparency is distinguished from the precision of the authority's own information and the ``quality" of its communications; increases in these are shown to be welfare improving under plausible conditions.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 1221.

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Date of creation: 2011
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Handle: RePEc:red:sed011:1221

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  1. Manuel Amador & Pierre Olivier Weill, 2008. "Learning from Prices: Public Communication and Welfare," 2008 Meeting Papers 390, Society for Economic Dynamics.
  2. Mirko Wiederholt, 2010. "rational inattention," The New Palgrave Dictionary of Economics, Palgrave Macmillan, Palgrave Macmillan.
  3. Filip Matejka, 2010. "Rigid Pricing and Rationally Inattentive Consumer," CERGE-EI Working Papers wp409, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  4. David P. Myatt & Chris Wallace, 2009. "Endogenous Information Acquisition in Coordination Games," Economics Series Working Papers, University of Oxford, Department of Economics 445, University of Oxford, Department of Economics.
  5. Mauro Roca, 2010. "Transparency and Monetary Policy with Imperfect Common Knowledge," IMF Working Papers 10/91, International Monetary Fund.
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