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Costly Information Intermediation: Quality vs. Spillovers

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  • Daniel Monte
  • Roberto Pinheiro

Abstract

We analyze information intermediaries in large economies with costly information acquisition. Intermediaries face a trade-off between quality and dissemination speed. Both altruistic policymakers and profit-maximizing monopolists optimally choose to sample limited information, increasing the number of partially informed agents and enhancing spillovers despite slower information accumulation. Altruistic information-sharing bureaus minimize fees by inducing low provider default rates, while monopolist bureaus maximize fees through higher faulty service rates. Information trade resembles a natural monopoly, where competition reduces efficiency through redundant costs and lower information spillovers. These findings inform regulatory design in platforms and information-intensive markets.

Suggested Citation

  • Daniel Monte & Roberto Pinheiro, 2017. "Costly Information Intermediation: Quality vs. Spillovers," Working Papers 17-21R2, Federal Reserve Bank of Cleveland, revised 05 Dec 2024.
    • Handle: RePEc:fip:fedcwq:172101
    DOI: 10.26509/frbc-wp-201721r2
    Note: This is a revision of Working Paper 17-21R which was issued in December of 2018.
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    References listed on IDEAS

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    More about this item

    Keywords

    Natural Monopoly; Market Structure; Costly Information trade;
    All these keywords.

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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