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Endogenous public information and welfare

  • Vives, Xavier

    ()

    (IESE Business School)

This paper performs a welfare analysis of economies with private information when public information is endogenously generated and agents can condition on noisy public statistics in the rational expectations tradition. We find that equilibrium is not (restricted) efficient even when feasible allocations share similar properties to the market context (e.g., linear in information). The reason is that the market in general does not internalize the informational externality when public statistics (e.g., prices) convey information. Under strategic substitutability, equilibrium prices will tend to convey too little information when the "informational" role of prices prevails over its index of scarcity" role and too much information in the opposite case. Under strategic complementarity, prices always convey too little information. These results extend to the internal efficiency benchmark (accounting only for the collective welfare of the active players). However, received results-on the relative weights placed by agents on private and public information, when the latter is exogenous-may be overturned.

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File URL: http://www.iese.edu/research/pdfs/DI-0925-E.pdf
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Paper provided by IESE Business School in its series IESE Research Papers with number D/925.

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Length: 37 pages
Date of creation: 01 Jun 2011
Date of revision:
Handle: RePEc:ebg:iesewp:d-0925
Contact details of provider: Postal:
IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN

Web page: http://www.iese.edu/

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  1. Xavier Vives, 2009. "Strategic Supply Function Competition with Private Information," CESifo Working Paper Series 2856, CESifo Group Munich.
  2. Richard Evans & Yingyao Hu & Zhong Zhao, 2010. "The fertility effect of catastrophe: U.S. hurricane births," Journal of Population Economics, Springer;European Society for Population Economics, vol. 23(1), pages 1-36, January.
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  4. Vives, X., 1990. "How Fast Do Rational Agents Learn?," UFAE and IAE Working Papers 135-90, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
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  6. Christian Ewerhart & Nuno Cassola & Natacha Valla, 2007. "Declining Valuations And Equilibrium Bidding In Central Bank Refinancing Operations," Swiss Finance Institute Research Paper Series 07-22, Swiss Finance Institute.
  7. Christian Hellwig & Laura Veldkamp, 2006. "Knowing what others Know: Coordination motives in information acquisition," 2006 Meeting Papers 361, Society for Economic Dynamics.
  8. Chu, Angus C., 2009. "Effects of Patent Length on R&D: A Quantitative DGE Analysis," MPRA Paper 16918, University Library of Munich, Germany.
  9. Ma, Fusheng & Kang, Shaozhong & Li, Fusheng & Zhang, Jianhua & Du, Taisheng & Hu, Xiaotao & Wang, Mixia, 2007. "Effect of water deficit in different growth stages on stem sap flux of greenhouse grown pear-jujube tree," Agricultural Water Management, Elsevier, vol. 90(3), pages 190-196, June.
  10. Rodriguez Mora, Jose V. & Schulstad, Paul, 2007. "The effect of GNP announcements on fluctuations of GNP growth," European Economic Review, Elsevier, vol. 51(8), pages 1922-1940, November.
  11. Yunfen Bai & Xinhua Hu & Zhongxing Ye, 2007. "A Model for Counterparty Risk with Geometric Attenuation Effect and the Valuation of CDS," Papers 0706.3331, arXiv.org.
  12. Yunbi An & Ata Assaf & Jun Yang, 2007. "Hedging Volatility Risk: The Effectiveness Of Volatility Options," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 10(03), pages 517-534.
  13. Hu, Haiyan & Jasper, Cynthia R., 2007. "A cross-cultural examination of the effects of social perception styles on store image formation," Journal of Business Research, Elsevier, vol. 60(3), pages 222-230, March.
  14. Juha Siikamäki & David F. Layton, 2007. "Potential Cost-Effectiveness of Incentive Payment Programs for the Protection of Non-Industrial Private Forests," Land Economics, University of Wisconsin Press, vol. 83(4), pages 539-560.
  15. Kiang, Melody Y. & Hu, Michael Y. & Fisher, Dorothy M., 2007. "The effect of sample size on the extended self-organizing map network--A market segmentation application," Computational Statistics & Data Analysis, Elsevier, vol. 51(12), pages 5940-5948, August.
  16. Amador, Manuel & Weill, Pierre-Olivier, 2006. "Learning from Private and Public Observation of Other's Actions," MPRA Paper 109, University Library of Munich, Germany.
  17. Vives, X., 1993. "Learning from Others," UFAE and IAE Working Papers 206.93, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  18. Vives, Xavier, 1988. "Aggregation of Information in Large Cournot Markets," Econometrica, Econometric Society, vol. 56(4), pages 851-76, July.
  19. Jian Wu & Min Gu & Lili Zhang & Yao Yu & Xin Chen & Tong B. Tang, 2007. "EFFECTS OF ANNEALING AND Ar INTERCALATION ON GLASS TRANSITION IN C60 FILMS," Surface Review and Letters (SRL), World Scientific Publishing Co. Pte. Ltd., vol. 14(04), pages 601-606.
  20. George-Marios Angeletos & Alessandro Pavan, 2007. "Efficient Use of Information and Social Value of Information," Econometrica, Econometric Society, vol. 75(4), pages 1103-1142, 07.
  21. Yanxia Ding & Guangda Hu & Suhua Fan, 2007. "EFFECTS OF La DOPING ON FERROELECTRIC PROPERTIES OF CaBi4Ti4O15 THIN FILMS," Surface Review and Letters (SRL), World Scientific Publishing Co. Pte. Ltd., vol. 14(02), pages 277-281.
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