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Information Processing and Limited Liability

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  • Bartosz Mackowiak
  • Mirko Wiederholt

Abstract

Decision-makers often face limited liability and thus know that their loss will be bounded. We study how limited liability affects the behavior of an agent who chooses how much information to acquire and process in order to take a good decision. We find that an agent facing limited liability processes less information than an agent with unlimited liability. The informational gap between the two agents is larger in bad times than in good times and when information is more costly to process.

Suggested Citation

  • Bartosz Mackowiak & Mirko Wiederholt, 2012. "Information Processing and Limited Liability," American Economic Review, American Economic Association, vol. 102(3), pages 30-34, May.
  • Handle: RePEc:aea:aecrev:v:102:y:2012:i:3:p:30-34
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.102.3.30
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    References listed on IDEAS

    as
    1. Mackowiak, Bartosz Adam & Wiederholt, Mirko, 2011. "Inattention to Rare Events," CEPR Discussion Papers 8626, C.E.P.R. Discussion Papers.
    2. Bartosz Mackowiak & Mirko Wiederholt, 2009. "Optimal Sticky Prices under Rational Inattention," American Economic Review, American Economic Association, vol. 99(3), pages 769-803, June.
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    Cited by:

    1. Natalia Fabra & Mar Reguant, 2014. "Pass-Through of Emissions Costs in Electricity Markets," American Economic Review, American Economic Association, vol. 104(9), pages 2872-2899, September.
    2. Bellalah, Mondher, 2016. "Shadow costs of incomplete information and short sales in the valuation of the firm and its assets," The North American Journal of Economics and Finance, Elsevier, vol. 37(C), pages 406-419.
    3. repec:spr:annopr:v:262:y:2018:i:2:d:10.1007_s10479-015-2050-y is not listed on IDEAS
    4. repec:spr:annopr:v:262:y:2018:i:2:d:10.1007_s10479-016-2256-7 is not listed on IDEAS
    5. repec:eee:jetheo:v:172:y:2017:i:c:p:273-312 is not listed on IDEAS

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