Journal of Political Economy Vol. 131 No. 10 2023
Information Acquisition, Efficiency, and Nonfundamental Volatility
Abstract
We analyze efficiency and nonfundamental volatility in a class of generalized beauty-contest economies with endogenous information. As in models of rational-expectations equilibria, agents learn about exogenous states and endogenous aggregate actions. As in models of rational inattention, agents choose their information structures subject to a cost. We identify conditions on information costs that guarantee the existence of efficient or inefficient equilibria; we further identify conditions that guarantee the existence or nonexistence of equilibria with zero nonfundamental volatility. Mutual information, the cost typically assumed in rational-inattention models, guarantees the existence of an efficient equilibrium with zero nonfundamental volatility.
- DOI
- 10.1086/724575
- Volume
- 131
- Issue
- 10
- Pages
- 2666-2723
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref