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The Social Value of Public Information with Convex Costs of Information Acquisition

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  • Ui, Takashi

Abstract

In a beauty contest framework, welfare can decrease with public information if the precision of private information is exogenous, whereas welfare necessarily increases with public information if the precision is endogenous with linear costs of information acquisition. The purpose of this paper is to reconcile these results by considering nonlinear costs of information acquisition. The main result of this paper is a necessary and sufficient condition for welfare to increase with public information. Using it, we show that costs of information acquisition are linear if and only if welfare necessarily increases with public information. Thus, welfare can decrease with public information for any strictly convex costs. This is because convex costs mitigate the so-called crowding-out effect of public information on private information, thereby making the social value of public information with endogenous precision closer to that with exogenous precision.

Suggested Citation

  • Ui, Takashi, 2014. "The Social Value of Public Information with Convex Costs of Information Acquisition," Discussion Papers 2014-05, Graduate School of Economics, Hitotsubashi University.
    • Handle: RePEc:hit:econdp:2014-05
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    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/26604/3/070econDP14-05.pdf
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    References listed on IDEAS

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    1. George-Marios Angeletos & Alessandro Pavan, 2004. "Transparency of Information and Coordination in Economies with Investment Complementarities," American Economic Review, American Economic Association, vol. 94(2), pages 91-98, May.
    2. Camille Cornand & Frank Heinemann, 2008. "Optimal Degree of Public Information Dissemination," Economic Journal, Royal Economic Society, vol. 118(528), pages 718-742, April.
    3. Christian Hellwig & Laura Veldkamp, 2009. "Knowing What Others Know: Coordination Motives in Information Acquisition," Review of Economic Studies, Oxford University Press, vol. 76(1), pages 223-251.
    4. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
    5. Vives, Xavier, 1988. "Aggregation of Information in Large Cournot Markets," Econometrica, Econometric Society, vol. 56(4), pages 851-876, July.
    6. Colombo, Luca & Femminis, Gianluca, 2008. "The social value of public information with costly information acquisition," Economics Letters, Elsevier, vol. 100(2), pages 196-199, August.
    7. David P. Myatt & Chris Wallace, 2012. "Endogenous Information Acquisition in Coordination Games," Review of Economic Studies, Oxford University Press, vol. 79(1), pages 340-374.
    8. George-Marios Angeletos & Alessandro Pavan, 2007. "Efficient Use of Information and Social Value of Information," Econometrica, Econometric Society, vol. 75(4), pages 1103-1142, July.
    9. Luca Colombo & Gianluca Femminis & Alessandro Pavan, 2014. "Information Acquisition and Welfare," Review of Economic Studies, Oxford University Press, vol. 81(4), pages 1438-1483.
    10. Li, Lode & McKelvey, Richard D. & Page, Talbot, 1987. "Optimal research for cournot oligopolists," Journal of Economic Theory, Elsevier, vol. 42(1), pages 140-166, June.
    11. Jonathan G. James & Phillip Lawler, 2011. "Optimal Policy Intervention and the Social Value of Public Information," American Economic Review, American Economic Association, vol. 101(4), pages 1561-1574, June.
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    Cited by:

    1. Hüning, Hendrik & Meub, Lukas, 2016. "Optimal public information dissemination: Introducing multiplier effects into a generalized beauty contest," Center for European, Governance and Economic Development Research Discussion Papers 260 [rev.], University of Goettingen, Department of Economics.
    2. Hüning, Hendrik & Meub, Lukas, 2015. "Optimal public information dissemination: Introducing observational learning into a generalized beauty contest," Center for European, Governance and Economic Development Research Discussion Papers 260, University of Goettingen, Department of Economics.
    3. Hüning, Hendrik & Meub, Lukas, 2015. "Optimal public information dissemination: Introducing observational learning into a generalized beauty contest," HWWI Research Papers 169, Hamburg Institute of International Economics (HWWI).
    4. Ui, Takashi & Yoshizawa, Yasunori, 2015. "Characterizing social value of information," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 507-535.

    More about this item

    Keywords

    public information; private information; crowding-out effect; linear quadratic Gaussian game;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General

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