Information (in) Chains: information transmission through production chains

Waldyr Areosa and Marta Areosa

No 286, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: We study the transmission of information in a model with a vertical input-output structure and dispersed information. Firms observe input prices with noise that endogenize the precision of information that is public within a stage but not across stages. In contrast to the case with an exogenous and overall public signal, our main result is that agents may find it optimal to rely less on public information along the chain. A direct implication is that, while information precision remains unchanged with exogenous public signals (information chains), it may decrease along the chain when semi-public signals are endogenous (information in chains).

Date: 2012-07
New Economics Papers: this item is included in nep-cta
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