Welfare effects of public information in a laboratory financial market
Simone Alfarano () and
Andrea Morone ()
MPRA Paper from University Library of Munich, Germany
This paper addresses the question of how public announcements can affect social welfare in an experimental asset market with costly private information acquisition. More specifically, we analyze how public information affects (i) the aggregate profits and (ii) the level of inequality in the distribution of profits across subjects. Using the data of Ruiz-Buforn et al. (2018), we show that public information disclosure always increases aggregate profits, since it crowds out private information reducing the informational costs. Nevertheless, the effects on the level of wealth inequality are ambiguous. They depend on the relative precision of public and private information and, interestingly, on the realization of the public signal. Thus, public information disclosure leads to a trade-off between increasing aggregate profits and reducing the inequality level.
Keywords: Public information; Asset market experiment; Inequality; Crowding-out (search for similar items in EconPapers)
JEL-codes: D63 D82 D83 G1 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:95424
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