The Value of Information in Impersonal and Personal Markets

Jeffrey F. Jaffe and Mark Rubinstein

Rodney L. White Center for Financial Research Working Papers from Wharton School Rodney L. White Center for Financial Research

Abstract: The conclusions of Hirshleifer (1971) concerning the private and social value of information in a pure exchange economy are examined. We agree that in the impersonal and competitive market of Hirshleifer, the production of new private information has private value and the production of new public information has no social value; however, the dissemination of existing private information has both positive private and social value. For the same reason, the production of private information, even if costless, can be socially harmful. We then examine a personal market, in which each consumer knows something of the economic characteristics of other consumers. In this context, even with arbitrary exchange arrangements, private information can be expected to be less valuable. It is not needed to identify Pareto-efficient allocations and may not even be needed to rank these allocations. Moreover, if either the endowed allocations is itself Pareto-efficient or exchange arrangements are competitive and average beliefs exist, then neither the production nor dissemination of private information has private or social value. In general, there is less incentive than one might expect to trade on private information. In impersonal markets, if the market for information can be efficiently organized, it is better to sell information than trade on it. And in personal markets, there may be no benefit to trading on information.

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