The Welfare Implications of Costly Information Provision

Luca Colombo and Gianluca Femminis

No ief0100, DISCE - Quaderni dell'Istituto di Economia e Finanza from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE)

Abstract: We study information acquisition in a framework characterized by strategic complementarity or substitutability. Agents’ actions are based on costly public and private signals, the precisions of which are set by a policy maker and by private agents, respectively. The policy maker – acting as a von Stackelberg leader – takes into account that an increase in the precision of public information reduces the incentives for private information acquisition. The precisions of both the public and private information available to each agent are shown to depend crucially on the degree of strategic complementarity or substitutability. We explore the welfare and policy implications of our results in economies with beauty contests, price setting complementarities, and negative externalities entailing strategic substitutability.

Keywords: Incomplete information; strategic complementarity; strategic substitutability; welfare (search for similar items in EconPapers)
JEL-codes: C72 D62 D83 E50 (search for similar items in EconPapers)
Pages: 47
Date: 2011-01
New Economics Papers: this item is included in nep-cba and nep-cta
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Citations: View citations in EconPapers (2)

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