Information Acquisition and Welfare

Abstract

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The social value of public information with convex costs of information acquisition

“…The above discussion on the role of convex costs does not depend upon the specific setting of the beauty contest model. Thus, our finding on the property of convex costs in Proposition 5 may be relevant in other models with information acquisition, such as the general model of Colombo et al (2014). To explore this issue, the use of the inverse function (4) may also be useful, which is a methodological difference between this paper and Colombo et al (2014).…”

“…Colombo et al (2014) also compare the social value of public information with endogenous precision and that with exogenous precision. They give a sufficient condition guaranteeing that the total effect W (α y ) is positive whenever the direct effect ∂F/∂α is positive and show that the beauty contest model satisfies the condition.…”

“…Our model is a special case of the model of Colombo et al (2014) who study information acquisition in symmetric linear quadratic Gaussian games of Angeletos and Pavan (2007). 4…”

“…This is because convex costs mitigate the crowding-out effect of public information, thereby making the social value of public information with endogenous precision closer to that with exogenous precision. Colombo et al (2014) also compare the social value of public information with endogenous precision and that with exogenous precision in a general model with nonlinear costs.…”

“…Their condition is based upon a comparison between the equilibrium and the socially optimal strategy profile. Such a comparison is useful in understanding the social value of public information, which is the focus of Colombo et al (2014). In contrast, our focus is the property of convex costs mitigating the crowding-out effect and a full characterization of the resulting social value of public information with endogenous precision.…”