Socially optimal coordination
Subtitle: characterization and policy implications
By: George-Marios Angeletos [and] Alessandro Pavan
Contributors: Pavan, Alessandro; Massachusetts Institute of Technology. Dept. of Economics
Series: Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 06-35; Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 06-35.
Publisher: Massachusetts Institute of Technology, Dept. of Economics
Published: 2006
Place of publication: Cambridge, MA
Language: eng
Number of pages: 13
Description: In recent years there has been a growing interest in macro models with heterogeneity in information and complementarity in actions. These models deliver promising positive properties, such as heightened inertia and volatility. But they also raise important normative questions, such as whether the heightened inertia and volatility are socially undesirable, whether there is room for policies that correct the way agents use information in equilibrium, and what are the welfare effects of the information disseminated by the media or policy makers. We argue that a key to answering all these questions is the relation between the equilibrium and the socially optimal degrees of coordination. The former summarizes the private value from aligning individual decisions, whereas the latter summarizes the value that society assigns to such an alignment once all externalities are internalized. Keywords: Dispersed information, coordination, complementarities, volatility, inertia, efficiency. JEL Classifications: C72, D62, D82.
Notes: "September 21, 2006."

Includes bibliographical references (p. 13).

Abstract in HTML and working paper for download in PDF available via World Wide Web at the Social Science Research Network.