Limited Attention as a Scarce Resource in Information-Rich Economies

Josef Falkinger

Economic Journal, 2008, vol. 118, issue 532, pages 1596-1620

Abstract: This article uses basic facts from the psychology of attention to show how the limited attention of consumers affects economic competition. The article determines endogenously whether an economy is information rich or information poor. A conventional economic equilibrium results if subjects have spare attention capacity. At the positive level, the respective impacts of advances in information technology, international integration and the media on equilibrium diversity and level of attention-seeking activities are shown. At the normative level, the issues of welfare, efficiency and optimal policy interventions are addressed. Copyright © The Author(s). Journal compilation © Royal Economic Society 2008.

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