The Rationality of Information Gathering: Monopoly

David K. H. Begg and Isabella Imperato

Manchester School, 2001, vol. 69, issue 3, 237-252

Abstract: This paper focuses on the optimal use of information in the presence of fixed, sunk, processing costs. The agent, being aware of the trade‐off between good (informed) forecasts and their cost, may decide to process her information only at discrete intervals of time. The optimal length of these intervals, during which no new information is taken on board, depends on the cost of processing information and on the variance of the stochastic variable to be monitored. These concepts are illustrated in a simple monopoly model and are extended to the cases of model uncertainty and the distinction between public and private monopoly.

Date: 2001
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