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Public Bads, Heterogeneous Beliefs, and the Value of Information

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  • Hiroaki Sakamoto

Abstract

This paper develops a simple model of public bads where players have heterogeneous beliefs about the consequence of their collective action. Properties of equilibrium and its relation to beliefs and preference are examined, followed by a detailed investigation of the impacts of new information. Our analysis sheds light on an important trade-off associated with information policies in the presence of belief heterogeneity and ambiguity. In particular, we show that newly available information can unambiguously worsen the free-riding problem even when it better reflects the correct risk than the players’ beliefs. Adding information noise will never mitigate the public-bad nature of the problem if players are equally confident about their beliefs. When the beliefs are highly heterogeneous, however, a certain amount of information noise can be Pareto-improving, for which the degrees of risk and ambiguity aversion play asymmetric roles.

Suggested Citation

  • Hiroaki Sakamoto, 2014. "Public Bads, Heterogeneous Beliefs, and the Value of Information," Discussion papers e-13-009, Graduate School of Economics Project Center, Kyoto University.
  • Handle: RePEc:kue:dpaper:e-13-009
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    File URL: http://www.econ.kyoto-u.ac.jp/projectcenter/Paper/e-13-009.pdf
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    References listed on IDEAS

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    5. Eichberger, Jurgen & Kelsey, David, 2002. "Strategic Complements, Substitutes, and Ambiguity: The Implications for Public Goods," Journal of Economic Theory, Elsevier, vol. 106(2), pages 436-466, October.
    6. : Kostas Koufopoulos & : Roman Kozhan, 2013. "Welfare-Improving Ambiguity in Insurance Markets with Asymmetric Information," Working Papers wpn13-13, Warwick Business School, Finance Group.
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    Cited by:

    1. Anwesha Banerjee & Nicolas Gravel, 2018. "Contribution To A Public Good Under Subjective Uncertainty," Working Papers halshs-01734745, HAL.

    More about this item

    Keywords

    externality; uncertainty; heterogeneous beliefs; information;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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