Information acquisition with heterogeneous valuations

Rohit Rahi ()

Journal of Economic Theory, 2021, vol. 191, issue C

Abstract: We study the market for a risky asset with uncertain heterogeneous valuations. Agents seek to learn about their own valuation by acquiring private information and making inferences from the equilibrium price. As agents of one type gather more information, they pull the price closer to their valuation and further away from the valuations of other types. Thus they exert a negative learning externality on other types. This in turn implies that a lower cost of information for one type induces all agents to acquire more information. Private information production is typically not socially optimal. In the case of two types who differ in their cost of information, we can always find a Pareto improvement that entails an increase in the aggregate amount of information, with a higher proportion produced by the low-cost type.

Keywords: Heterogeneous valuations; Information acquisition; Learning externalities; Strategic complementarities; Welfare (search for similar items in EconPapers)
JEL-codes: D82 G14 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:191:y:2021:i:c:s0022053120301484

DOI: 10.1016/j.jet.2020.105155

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