Precision of Market-Generated Information in Economies with Coordination Motives

Myungkyu Shim and Giacomo Rondina

No 554, 2014 Meeting Papers from Society for Economic Dynamics

Abstract: a class of economies where firms display coordination motives in presence of dispersed information and where the outcome of the coordination is traded in a competitive asset market ´a-la Grossman and Stiglitz (1980). We show that when more private information is injected in the coordination economy the equilibrium asset price becomes less informative. To showcase the relevance of our result we present an application to a problem of endogenous information choice where the "Knowing What Others Know" property of information acquisition derived by Hellwig and Veldkamp (2009) breaks down in presence of market-generated information.

Date: 2014
New Economics Papers: this item is included in nep-mic
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