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The Social Value of Asymmetric Information


  • Franklin Allen


A welfare analysis of a simple noisy rational expectations model is carried out. It is shown that the more information prices convey, the worse off everybody is. However, the equilibrium where everybody is uninformed may not be Pareto optimal: imposing a tax on information gathering which finances a lump sum grant may allow everybody to be better off when some people are informed. A corresponding result holds when the model is used to consider the release of information by firms: all shareholders may be better off if information is released to a group of insiders as a form of compensation.

Suggested Citation

  • Franklin Allen, "undated". "The Social Value of Asymmetric Information," Rodney L. White Center for Financial Research Working Papers 23-84, Wharton School Rodney L. White Center for Financial Research.
  • Handle: RePEc:fth:pennfi:23-84

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    References listed on IDEAS

    1. Harrison, J Michael & Pitbladdo, Richard & Schaefer, Stephen M, 1984. "Continuous Price Processes in Frictionless Markets Have Infinite Variation," The Journal of Business, University of Chicago Press, vol. 57(3), pages 353-365, July.
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    Cited by:

    1. Kurlat, Pablo & Veldkamp, Laura, 2015. "Should we regulate financial information?," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 697-720.
    2. Jordi Caballe, 1991. "Expectativas racionales, competencia perfecta y comportamiento estratégico en los mercados financieros," Investigaciones Economicas, Fundación SEPI, vol. 15(1), pages 3-34, January.

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