Socially Optimal Coordination: Characterization and Policy Implications

George-Marios Angeletos and Alessandro Pavan

No 1496, Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science

Abstract: In recent years there has been a growing interest in macro models with heterogeneity in information and complementarity in actions. These models deliver promising positive properties, such as heightened inertia and volatility. But they also raise important normative questions, such as whether the heightened inertia and volatility are socially undesirable, whether there is room for policies that correct the way agents use information in equilibrium, and what are the welfare effects of the information disseminated by the media or policy makers. We argue that a key to answering all these questions is the relation between the equilibrium and the socially optimal degrees of coordination. The former summarizes the private value from aligning individual decisions, whereas the latter summarizes the value that society assigns to such an alignment once all externalities are internalized.

Keywords: Dispersed information; coordination; complementarities; volatility; inertia; efficiency (search for similar items in EconPapers)
JEL-codes: C72 D62 D82 (search for similar items in EconPapers)
Date: 2006-09
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Citations: View citations in EconPapers (2)

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Journal Article: Socially Optimal Coordination: Characterization and Policy Implications (2007)
Working Paper: Socially Optimal Coordination: Characterization and Policy Implications (2006)
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