Impacts of Public Information on Flexible Information Acquisition

Takashi Ui

Papers from arXiv.org

Abstract: Interacting agents receive public information at no cost and flexibly acquire private information at a cost proportional to entropy reduction. When a policymaker provides more public information, agents acquire less private information, thus lowering information costs. Does more public information raise or reduce uncertainty faced by agents? Is it beneficial or detrimental to welfare? To address these questions, we examine the impacts of public information on flexible information acquisition in a linear-quadratic-Gaussian game with arbitrary quadratic material welfare. More public information raises uncertainty if and only if the game exhibits strategic complementarity, which can be harmful to welfare. However, when agents acquire a large amount of information, more provision of public information increases welfare through a substantial reduction in the cost of information. We give a necessary and sufficient condition for welfare to increase with public information and identify optimal public information disclosure, which is either full or partial disclosure depending upon the welfare function and the slope of the best response.

Date: 2022-04, Revised 2022-04
New Economics Papers: this item is included in nep-gth, nep-mic and nep-ore
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Citations: View citations in EconPapers (2)

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