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The social value of public information with convex costs of information acquisition

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  • Ui, Takashi

Abstract

In a beauty contest framework, welfare can decrease with public information if the precision of private information is exogenous, whereas welfare necessarily increases with public information if the precision is endogenous with linear costs of information acquisition. The purpose of this paper is to reconcile these results by considering nonlinear costs of information acquisition. The main result of this paper is a necessary and sufficient condition for welfare to increase with public information. Using it, we show that costs of information acquisition are linear if and only if welfare necessarily increases with public information. Thus, welfare can decrease with public information for any strictly convex costs. This is because convex costs mitigate the so-called crowding-out effect of public information on private information, thereby making the social value of public information with endogenous precision closer to that with exogenous precision.

Suggested Citation

  • Ui, Takashi, 2014. "The social value of public information with convex costs of information acquisition," Economics Letters, Elsevier, vol. 125(2), pages 249-252.
    • Handle: RePEc:eee:ecolet:v:125:y:2014:i:2:p:249-252
    DOI: 10.1016/j.econlet.2014.09.015
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    References listed on IDEAS

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    1. George-Marios Angeletos & Alessandro Pavan, 2004. "Transparency of Information and Coordination in Economies with Investment Complementarities," American Economic Review, American Economic Association, vol. 94(2), pages 91-98, May.
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    Cited by:

    1. Takashi Ui, 2022. "Impacts of Public Information on Flexible Information Acquisition," Papers 2204.09250, arXiv.org, revised Apr 2022.
    2. Jin Yeub Kim & Myungkyu Shim, 2022. "Information Inequality and the Role of Public Information," Korean Economic Review, Korean Economic Association, vol. 38, pages 207-230.
    3. Arato, Hiroki & Hori, Takeo & Nakamura, Tomoya, 2021. "Endogenous information acquisition and the partial announcement policy," Information Economics and Policy, Elsevier, vol. 55(C).
    4. Takashi Ui, 2022. "Optimal and Robust Disclosure of Public Information," Papers 2203.16809, arXiv.org, revised Apr 2022.
    5. Femminis, Gianluca & Piccirilli, Giulio, 2021. "Efficient information acquisition with heterogeneous agents," Economics Letters, Elsevier, vol. 207(C).
    6. Takashi Ui, 2022. "Optimal and Robust Disclosure of Public Information," Working Papers on Central Bank Communication 039, University of Tokyo, Graduate School of Economics.
    7. Ui, Takashi & Yoshizawa, Yasunori, 2015. "Characterizing social value of information," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 507-535.

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    More about this item

    Keywords

    Public information; Private information; Crowding-out effect; Linear quadratic Gaussian game;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General

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