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The Cost of Information: The Case of Constant Marginal Costs

Author

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  • Luciano Pomatto
  • Philipp Strack
  • Omer Tamuz

Abstract

We develop an axiomatic theory of information acquisition that captures the idea of constant marginal costs in information production: the cost of generating two independent signals is the sum of their costs, and generating a signal with probability half costs half its original cost. Together with Blackwell monotonicity and a continuity condition, these axioms determine the cost of a signal up to a vector of parameters. These parameters have a clear economic interpretation and determine the difficulty of distinguishing states.

Suggested Citation

  • Luciano Pomatto & Philipp Strack & Omer Tamuz, 2023. "The Cost of Information: The Case of Constant Marginal Costs," American Economic Review, American Economic Association, vol. 113(5), pages 1360-1393, May.
    • Handle: RePEc:aea:aecrev:v:113:y:2023:i:5:p:1360-93
    DOI: 10.1257/aer.20190185
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    Citations

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    Cited by:

    1. Shaofei Jiang, 2024. "Costly Persuasion by a Partially Informed Sender," Papers 2401.14087, arXiv.org, revised Feb 2024.
    2. Luca Braghieri, 2023. "Biased Decoding and the Foundations of Communication," CESifo Working Paper Series 10432, CESifo.
    3. Benjamin Davies, 2024. "Learning about a changing state," Papers 2401.03607, arXiv.org.
    4. Walker-Jones, David, 2023. "Rational inattention with multiple attributes," Journal of Economic Theory, Elsevier, vol. 212(C).
    5. Flynn, Joel P. & Sastry, Karthik A., 2023. "Strategic mistakes," Journal of Economic Theory, Elsevier, vol. 212(C).

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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