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Good News and Bad News: Representation Theorems and Applications

Paul Milgrom ()

Bell Journal of Economics, 1981, vol. 12, issue 2, 380-391

Abstract: This is an article about modeling methods in information economics. A notion of "favorableness" of news is introduced, characterized, and applied to four simple models. In the equilibria of these models, (1) the arrival of good news about a firm's prospects always causes its share price to rise, (2) more favorable evidence about an agent's effort leads the principal to pay a larger bonus, (3) buyers expect that any product information withheld by a salesman is unfavorable to his product, and (4) bidders figure that low bids by their competitors signal a low value for the object being sold.

Date: 1981
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Working Paper: Good Nevs and Bad News: Representation Theorems and Applications (1979) Downloads
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Handle: RePEc:rje:bellje:v:12:y:1981:i:autumn:p:380-391