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The Rationality of Information Gathering: Monopoly

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  • Begg, David K H
  • Imperato, Isabella

Abstract

This paper focuses on the optimal use of information in the presence of fixed, sunk, processing costs. The agent, being aware of the trade-off between good (informed) forecasts and their cost, may decide to process her information only at discrete intervals of time. The optimal length of these intervals, during which no new information is taken on board, depends on the cost of processing information and on the variance of the stochastic variable to be monitored. These concepts are illustrated in a simple monopoly model and are extended to the cases of model uncertainty and the distinction between public and private monopoly. Copyright 2001 by Blackwell Publishers Ltd and The Victoria University of Manchester

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  • Begg, David K H & Imperato, Isabella, 2001. "The Rationality of Information Gathering: Monopoly," Manchester School, University of Manchester, vol. 69(3), pages 237-252, June.
  • Handle: RePEc:bla:manchs:v:69:y:2001:i:3:p:237-52
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    References listed on IDEAS

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    1. Diebold, Francis X & Rudebusch, Glenn D, 1992. "Have Postwar Economic Fluctuations Been Stabilized?," American Economic Review, American Economic Association, pages 993-1005.
    2. Sensier, M. & van Dijk, D.J.C., 2001. "Short-term volatility versus long-term growth: evidence in US macroeconomic time series," Econometric Institute Research Papers EI 2001-11, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    3. Romer, Christina D., 1994. "Remeasuring Business Cycles," The Journal of Economic History, Cambridge University Press, vol. 54(03), pages 573-609, September.
    4. Chauvet, Marcelle, 1998. "An Econometric Characterization of Business Cycle Dynamics with Factor Structure and Regime Switching," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 969-996, November.
    5. Olivier Blanchard & John Simon, 2001. "The Long and Large Decline in U.S. Output Volatility," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 135-174.
    6. Koop, Gary & Potter, Simon M., 1998. "Bayes factors and nonlinearity: Evidence from economic time series1," Journal of Econometrics, Elsevier, vol. 88(2), pages 251-281, November.
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    Cited by:

    1. Philippe Bacchetta & Eric van Wincoop, 2006. "Incomplete information processing: a solution to the forward discount puzzle," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
    2. Joshy Easaw & Atanu Ghoshray & Saeed Heravi, 2014. "Households' Forming Subjective Expectations Using Perceived News: Do Shocks to ‘Good’ News Matter More Than ‘Bad’ News?," Manchester School, University of Manchester, vol. 82(1), pages 1-16, January.
    3. Easaw, Joshy & Ghoshray, Atanu, 2010. "News and households' subjective macroeconomic expectations," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 469-475, March.

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