Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/31194
Authors: 
Angeletos, George-Marios
Pavan, Alessandro
Year of Publication: 
2006
Series/Report no.: 
Discussion paper // Center for Mathematical Studies in Economics and Management Science 1413
Abstract: 
This paper analyzes equlibrium and welfare for a tractable class of economies (games) with externalities, strategic complementarity or substitutability, and heterogenous information. First, we characterize the equilibrium use of information; complementarity heightens the sensitivity of equilibrium actions to public information, raising aggregate volatility, whereas substitutability heightens the sensitivity to private information, cross-sectional dispersion. Next, we define and characterize an efficiency benchmark designed to address whether the equilibrium use of information is optimal from a social perspective; the efficient use of information reflects the social value of aligning choices across agents. Finally, we examine the comparative statics of equilibrium welfare with respect to the information structure; the social value of information is best understood by classifying economies according to the inefficiency, if any, in the equilibrium use of information. We conclude with a few applications, including production externalities, beauty contests, business cycles, and large Cournot and Bertrand games.
Subjects: 
incomplete information
coordination
complementarities
externalities
amplification
efficiency
JEL: 
C72
D62
D82
Document Type: 
Working Paper

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