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Socially Optimal Coordination: Characterization and Policy Implications

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  • George-Marios Angeletos
  • Alessandro Pavan

Abstract

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.

Suggested Citation

  • George-Marios Angeletos & Alessandro Pavan, 2006. "Socially Optimal Coordination: Characterization and Policy Implications," Discussion Papers 1496, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  • Handle: RePEc:nwu:cmsems:1496
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. George-Marios Angeletos & Alessandro Pavan, 2009. "Policy with Dispersed Information," Journal of the European Economic Association, MIT Press, vol. 7(1), pages 11-60, March.
    2. Silvia Sonderegger, 2010. "Centralized Or Decentralized Information: Which Is Better For Providing Incentives?," Economic Inquiry, Western Economic Association International, vol. 48(2), pages 290-305, April.
    3. Chen, Heng & Luo, Yulei & Pei, Guangyu, 2015. "Attention misallocation, social welfare and policy implications," Journal of Economic Dynamics and Control, Elsevier, vol. 59(C), pages 37-57.
    4. Baeriswyl, Romain & Cornand, Camille, 2007. "Monetary policy and its informative value," Proceedings, Federal Reserve Bank of San Francisco, issue March, pages 1-34.
    5. repec:bla:manchs:v:85:y:2017:i:5:p:577-600 is not listed on IDEAS
    6. Mäkinen, Taneli & Ohl, Björn, 2015. "Information acquisition and learning from prices over the business cycle," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 585-633.
    7. Camille Cornand & Frank Heinemann, 2014. "Measuring agents’ reaction to private and public information in games with strategic complementarities," Experimental Economics, Springer;Economic Science Association, vol. 17(1), pages 61-77, March.
    8. James, Jonathan G. & Lawler, Phillip, 2012. "Heterogeneous information quality; strategic complementarities and optimal policy design," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 342-352.
    9. Chen, Heng & Luo, Yulei & Pei, Guangyu, 2014. "Too Much of a Good Thing: Attention Misallocation and Social Welfare in Coordination Games," MPRA Paper 59139, University Library of Munich, Germany.
    10. Paul A. Grout & Sebastien Mitraille & Silvia Sonderegger, 2008. "The Costs and Benefits of "Strangers": Why Mixed Communities Are Better," The Centre for Market and Public Organisation 08/191, Department of Economics, University of Bristol, UK.
    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.
    12. Isabella Blengini & Kenza Benhima, 2016. "Optimal Monetary Policy when Information is Market-Generated," 2016 Meeting Papers 1223, Society for Economic Dynamics.
    13. Grout, Paul A. & Mitraille, Sébastien & Sonderegger, Silvia, 2015. "The costs and benefits of coordinating with a different group," Journal of Economic Theory, Elsevier, vol. 160(C), pages 517-535.
    14. Huang, Weiting, 2009. "作为人力资本的语言:专业化、组织沟通与语言习得
      [Language as Human Capital: Labor Specialization, Organizational Communication and Language Acquisition]
      ," MPRA Paper 15677, University Library of Munich, Germany.

    More about this item

    Keywords

    Dispersed information; coordination; complementarities; volatility; inertia; efficiency;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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