Econometrica Vol. 75 No. 4 2007
Efficient Use of Information and Social�Value�of�Information
Abstract
This paper analyzes equlibrium and welfare for a tractable class of economies (games) with externalities, strategic complementarity or substitutability, and heterogenous information. First, we characterize the equilibrium use of information; complementarity heightens the sensitivity of equilibrium actions to public information, raising aggregate volatility, whereas substitutability heightens the sensitivity to private information, cross-sectional dispersion. Next, we define and characterize an efficiency benchmark designed to address whether the equilibrium use of information is optimal from a social perspective; the efficient use of information reflects the social value of aligning choices across agents. Finally, we examine the comparative statics of equilibrium welfare with respect to the information structure; the social value of information is best understood by classifying economies according to the inefficiency, if any, in the equilibrium use of information. We conclude with a few applications, including production externalities, beauty contests, business cycles, and large Cournot and Bertrand games.
- DOI
- 10.1111/j.1468-0262.2007.00783.x
- Volume
- 75
- Issue
- 4
- Pages
- 1103-1142
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref