Information Acquisition and Welfare

We study information acquisition in a flexible framework with strategic complementarity or substitutability in actions and a rich set of externalities that are responsible for possible wedges between the equilibrium and the efficient acquisition of information. First, we relate the (in)efficiency in...

Full description

Saved in:

Bibliographic Details
Published in:	The Review of economic studies 2014-10, Vol.81 (4 (289)), p.1438-1483
Main Authors:	COLOMBO, LUCA, FEMMINIS, GIANLUCA, PAVAN, ALESSANDRO
Format:	Article
Language:	eng
Subjects:	Acquisition costs Acquisitions & mergers Applied economics Crowding out effect Economic efficiency Economic externalities Economic models Efficiency Equilibrium Externalities Externality Information economics Information management Information use Knowledge management Price efficiency Public information Studies Welfare
Online Access:	Get full text
Tags:	Add Tag No Tags, Be the first to tag this record!

Description
Summary:	We study information acquisition in a flexible framework with strategic complementarity or substitutability in actions and a rich set of externalities that are responsible for possible wedges between the equilibrium and the efficient acquisition of information. First, we relate the (in)efficiency in the acquisition of information to the (in)efficiency in the use of information and explain why efficiency in the use is no guarantee of efficiency in the acquisition. Next, we show how the acquisition of private information affects the social value of public information (i.e. the comparative statics of equilibrium welfare with respect to the quality of public information). Finally, we illustrate the implications of the results in a monetary economy with price rigidities and dispersed information about productivity shocks.
ISSN:	0034-6527 1467-937X