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Information and crowding externalities

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  • C. Clark
  • Mattias Polborn

Abstract

We analyze a model in which agents have to make a binary choice under incomplete information about the state of the world, but also care about coordination with other agents who have the same problem. In some of these situations, the larger the share choosing the same alternative, the better off are agents. In others, if too many people choose the same alternative, agents could be worse off, due to crowding externalities. Agents receive public and private information about the state of the world. We determine whether agents rely more on private or public information, and whether or not their choice behavior is socially efficient. We characterize existence conditions for equilibria in which either all available information, or only the public information is used for decisions, compare the two equilibria in terms of welfare, and analyze the effects of better information. Surprisingly, increasing signal accuracy may be welfare decreasing. Copyright Springer-Verlag Berlin/Heidelberg 2006

Suggested Citation

  • C. Clark & Mattias Polborn, 2006. "Information and crowding externalities," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 27(3), pages 565-581, April.
    • Handle: RePEc:spr:joecth:v:27:y:2006:i:3:p:565-581
    DOI: 10.1007/s00199-004-0588-z
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    Citations

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    Cited by:

    1. Camille Cornand & Rodolphe Dos Santos Ferreira, 2020. "The social value of information and the competition motive: price versus quantity games," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 70(4), pages 1101-1137, November.
    2. C. Robert Clark & Samuel Clark & Mattias K. Polborn, 2006. "Coordination and Status Influence," Rationality and Society, , vol. 18(3), pages 367-391, August.
    3. Anna Bayona, 2018. "The social value of information with an endogenous public signal," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(4), pages 1059-1087, December.
    4. Gabriel Desgranges & Céline Rochon, 2013. "Conformism and public news," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(3), pages 1061-1090, April.
    5. Alvarez, Emiliano & Brida, Juan Gabriel, 2019. "What about the others? Consensus and equilibria in the presence of self-interest and conformity in social groups," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 518(C), pages 285-298.
    6. Moez Bennouri & C. Clark & Jacques Robert, 2010. "Information provision in financial markets," Annals of Finance, Springer, vol. 6(2), pages 255-286, March.

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