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Socially Optimal Coordination: Characterization and Policy Implications

  • George-Marios Angeletos
  • Alessandro Pavan

In recent years there has been a growing interest in macro models with heterogeneity in information and complementarity in actions. These models deliver promising positive properties, such as heightened inertia and volatility. But they also raise important normative questions, such as whether the heightened inertia and volatility are socially undesirable, whether there is room for policies that correct the way agents use information in equilibrium, and what are the welfare effects of the information disseminated by the media or policy makers. We argue that a key to answering all these questions is the relation between the equilibrium and the socially optimal degrees of coordination. The former summarizes the private value from aligning individual decisions, whereas the latter summarizes the value that society assigns to such an alignment once all externalities are internalized.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12778.

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Date of creation: Dec 2006
Publication status: published as George-Marios Angeletos & Alessandro Pavan, 2007. "Socially Optimal Coordination: Characterization and Policy Implications," Journal of the European Economic Association, MIT Press, vol. 5(2-3), pages 585-593, 04-05.
Handle: RePEc:nbr:nberwo:12778
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  19. Zhang, Yuzhe, 2009. "Dynamic Contracting with Persistent Shocks," MPRA Paper 23108, University Library of Munich, Germany.
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