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Information Percolation with Equilibrium Search Dynamics

  • Darrell DUFFIE

    (Stanford University)

  • Semyon MALAMUD

    (ETH Zurich and Swiss Finance Institute)

  • Gustavo MANSO

    (MIT)

We solve for the equilibrium dynamics of information sharing in a large population. Each agent is endowed with signals regarding the likely outcome of a random variable of common concern. Individuals choose the effort with which they search for others from whom they can gather additional information. When two agents meet, they share their information. The information gathered is further shared at subsequent meetings, and so on. Equilibria exist in which agents search maximally until they acquire sufficient information precision, and then minimally. A tax whose proceeds are used to subsidize the costs of search improves information sharing and can in some cases increase welfare. On the other hand,endowing agents with public signals reduces information sharing and can in some cases decrease welfare.

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File URL: http://ssrn.com/abstract=1333963
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Paper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 09-02.

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Length: 61 pages
Date of creation:
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Handle: RePEc:chf:rpseri:rp0902
Contact details of provider: Web page: http://www.SwissFinanceInstitute.ch

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