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Learning, public good provision, and the information trap

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  • Aleksander Berentsen
  • Esther Bruegger
  • Simon Loertscher

Abstract

We consider an economy where decision maker(s) do not know the true production function for a public good. By using Bayes rule they can learn from experience. We show that the economy may learn the truth, but that it may also converge to an inefficient policy where no further inference is possible so that the economy is stuck in an information trap. We also show that our results are robust with respect to experimentation.

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Bibliographic Info

Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 371.

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Date of creation: May 2008
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Handle: RePEc:zur:iewwpx:371

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Keywords: Public economics; learning; size of government;

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Cited by:
  1. Warren, Patrick L. & Wilkening, Tom S., 2012. "Regulatory fog: The role of information in regulatory persistence," Journal of Economic Behavior & Organization, Elsevier, vol. 84(3), pages 840-856.

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