Information acquisition, price informativeness and welfare

Rohit Rahi and Jean-Pierre Zigrand

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We consider the market for a risky asset with heterogeneous valuations. Private information that agents have about their own valuation is reflected in the equilibrium price. We study the learning externalities that arise in this setting, and in particular their implications for price informativeness and welfare. When private signals are noisy, so that agents rely more on the information conveyed by prices, discouraging information gathering may be Pareto improving. Complementarities in information acquisition can lead to multiple equilibria.

Keywords: heterogeneous valuations; information acquisition; learning externalities; welfare (search for similar items in EconPapers)
JEL-codes: D82 G14 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2018-04-30
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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