Endogenous information acquisition and countercyclical uncertainty
Jess Benhabib (),
Xuewen Liu and
Pengfei Wang ()
Journal of Economic Theory, 2016, vol. 165, issue C, 601-642
We introduce endogenous information acquisition into an otherwise standard business cycle model. In our framework information is a productive input, which is essentially specialized labor, so information acquisition is linked to the labor market and thereby to macroeconomic conditions. We show that when firms acquire information optimally, information acquisition is endogenously procyclical, and therefore economic uncertainty faced by the firms is countercyclical. Two-way feedback exists between economic uncertainty and macroeconomic activities, resulting in an amplification effect of TFP shocks, and possibly generating multiple equilibria. Our basic model can also be extended to explain countercyclical aggregate volatility. On the theoretical side, our model demonstrates that strategic complementarity (substitutability) in information acquisition coincides with strategic complementarity (substitutability) in production, and that reducing uncertainty through information acquisition improves resource allocation.
Keywords: Information acquisition; Countercyclical uncertainty; Resource misallocation (search for similar items in EconPapers)
JEL-codes: E30 E44 G01 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:165:y:2016:i:c:p:601-642
Access Statistics for this article
Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell
More articles in Journal of Economic Theory from Elsevier
Bibliographic data for series maintained by Catherine Liu ().