Attention misallocation, social welfare and policy implications

Heng Chen, Yulei Luo () and Guangyu Pei

Journal of Economic Dynamics and Control, 2015, vol. 59, issue C, 37-57

Abstract: We examine how agents allocate attention between private and public signals to reduce the uncertainty about observation noises when coordination is an important concern. In this setting, the attention allocation may not be monotone in endowed attention capacity. Agents may decrease their attention on or even ignore the more accurate signal when capacity increases. As a result, social welfare may decrease when they have more attention to process information. And it can be even higher when agents possess a finite amount of capacity than when they have an infinite amount of capacity. We derive sufficient and necessary conditions under which multiple equilibria emerge and study the implications of equilibrium multiplicity for macroeconomic policies.

Keywords: Coordination game; Social welfare; Rational inattention (search for similar items in EconPapers)
JEL-codes: C72 D60 E58 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (1)

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Working Paper: Attention Misallocation, Social Welfare and Policy Implications (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:59:y:2015:i:c:p:37-57

DOI: 10.1016/j.jedc.2015.05.003

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