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Transparency and Costly Information Acquisition

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  • Ryan A Chahrour

    (Columbia University)

Abstract

I study the choice of economic transparency in a heterogeneous-information model where agents must pay a cost to observe the announcements of an information authority. The authority chooses transparency by selecting the number of signals regarding an aggregate state to make public, and agents respond by choosing how many of those signals to observe. I show that, when agents seek to coordinate their actions, the amount of information actually gathered by agents is non-monotonic in the transparency of the authority. The optimal degree of transparency is always interior and depends on the strength of complementarities in the economy. Transparency is distinguished from the precision of the authority's own information and the ``quality" of its communications; increases in these are shown to be welfare improving under plausible conditions.

Suggested Citation

  • Ryan A Chahrour, 2011. "Transparency and Costly Information Acquisition," 2011 Meeting Papers 1221, Society for Economic Dynamics.
  • Handle: RePEc:red:sed011:1221
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    File URL: https://economicdynamics.org/meetpapers/2011/paper_1221.pdf
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    References listed on IDEAS

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    1. Manuel Amador & Pierre-Olivier Weill, 2010. "Learning from Prices: Public Communication and Welfare," Journal of Political Economy, University of Chicago Press, vol. 118(5), pages 866-907.
    2. Blinder, Alan S., 2007. "Monetary policy by committee: Why and how?," European Journal of Political Economy, Elsevier, vol. 23(1), pages 106-123, March.
    3. Mauro F Roca, 2010. "Transparency and Monetary Policy with Imperfect Common Knowledge," IMF Working Papers 10/91, International Monetary Fund.
    4. 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.
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