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Learning, public good provision, and the information trap

Aleksander Berentsen (), Esther Bruegger and Simon Loertscher ()

Journal of Public Economics, 2008, vol. 92, issue 5-6, 998-1010

Abstract: We consider an economy with uncertainty about the true production function for a public good. By using Bayes rule the economy can learn from experience. We show that it may learn the truth, but that it may also converge to an inefficient policy where no further inference is possible so that the economy is stuck in an information trap. We also show that our results are robust with respect to small experimentation.

Date: 2008
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