Value of information in competitive economies with incomplete markets
Title: Value of information in competitive economies with incomplete markets
Citation: International Economic Review, 2014, Vol. 55, No. 1, pp. 57–81
ISSN: 0020-6598; 1468-2354
We study the value of public information in competitive economies with incomplete markets. We show that generically the welfare effect of a change in the information available prior to trading can be in any direction : There exist changes in information that make all agents better off and changes for which all agents are worse off. In contrast, for any change in information, a Pareto improvement is feasible, that is, attainable by a planner facing the same informational and asset market constraints as agents. In this sense, the response of competitive markets to changes in information is typically not socially optimal.
This article is based on EUI ECO WP 2010/34.
Initial version: http://hdl.handle.net/1814/14440
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