The Two Faces of Information

Guillermo Ordonez and Gaetano Gaballo
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Gaetano Gaballo: European Central Bank

No 811, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: Information is a double-edged sword. On the one hand, it increases investment efficiency when originating an asset. On the other hand, it decreases its liquidity value when trading it. We capture these two faces of information in a simple setting in which agents who invest in an asset know that they may hold it to maturity or may need to sell it beforehand because of a liquidity shock. As the efficiency of investment and the transaction value of the asset depend on how many agents acquire information there is multiple equilibria. Some of these may be inefficient, either with excessive information and insufficient liquidity or with insufficient information and inefficient investment.

Date: 2017
New Economics Papers: this item is included in nep-gth
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Working Paper: The Two Faces of Information (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed017:811

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