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Implications of More Precise Information for Technological Development and Welfare


  • Bernhard Eckwert
  • Burkhard Drees


This paper analyzes the dynamic interactions between the precision of information, technological development, and welfare within an overlapping generations model. More precise information about idiosyncratic production shocks has ambiguous effects on technological progress and welfare, which depend critically on the risk sharing capacity of the economy's financial system. For example, we show that with efficient risk sharing more precise information adversely affects the equilibrium risk allocation and creates a negative uncertainty-related welfare effect, at the same time as it accelerates technological progress and increases R&D investment.

Suggested Citation

  • Bernhard Eckwert & Burkhard Drees, 2007. "Implications of More Precise Information for Technological Development and Welfare," IMF Working Papers 07/95, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:07/95

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    References listed on IDEAS

    1. Greenwood, Jeremy & Jovanovic, Boyan, 1990. "Financial Development, Growth, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1076-1107, October.
    2. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934 Elsevier.
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    4. H. W. Singer, 1998. "Growth, Development and Trade," Books, Edward Elgar Publishing, number 1358.
    5. Greenwood, Jeremy & Smith, Bruce D., 1997. "Financial markets in development, and the development of financial markets," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 145-181, January.
    6. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
    7. Blackburn, Keith & Hung, Victor T Y, 1998. "A Theory of Growth, Financial Development and Trade," Economica, London School of Economics and Political Science, vol. 65(257), pages 107-124, February.
    8. Galetovic, Alexander, 1996. "Specialization, intermediation, and growth," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 549-559, December.
    9. Burkhard Drees & Bernhard Eckwert, 2003. "Welfare Effects of Transparency in Foreign Exchange Markets: the Role of Hedging Opportunities," Review of International Economics, Wiley Blackwell, vol. 11(3), pages 453-463, August.
    10. Bernhard Eckwert & Itzhak Zilcha, 2004. "Economic implications of better information in a dynamic framework," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(3), pages 561-581, October.
    11. Feldman, Mark & Gilles, Christian, 1985. "An expository note on individual risk without aggregate uncertainty," Journal of Economic Theory, Elsevier, vol. 35(1), pages 26-32, February.
    12. Edward E. Schlee, 2001. "The Value of Information in Efficient Risk-Sharing Arrangements," American Economic Review, American Economic Association, vol. 91(3), pages 509-524, June.
    13. Eckwert, Bernhard & Zilcha, Itzhak, 2001. "The Value of Information in Production Economies," Journal of Economic Theory, Elsevier, vol. 100(1), pages 172-186, September.
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