Transparency of information and coordination in economies with investment complementarities
By: George-Marios Angeletos, Alessandro Pavan.
Contributors: Pavan, Alessandro.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10391; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10391.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "How do public and private information affect equilibrium allocations and social welfare in economies with investment complementarities? And what is the optimal transparency in the information conveyed, for example, by economic statistics, policy announcements, or news in the media? We first consider an environment where the complementarities are weak so that the equilibrium is unique no matter the structure of information.  An increase in the precision of public information may have the perverse effect of increasing aggregate volatility.  Nevertheless, as long as there is no value to lotteries, welfare unambiguously increases with an increase in either the relative or the absolute precision of public information.  Hence, full transparency is optimal.  This is because more transparency facilitates more effective coordination, which is valuable from a social perspective.  On the other hand, when complementarities are strong enough that multiple equilibria are possible, more transparency permits the market to coordinate more effectively on either the bad or the good equilibrium.  In this case, constructive ambiguity becomes optimal if there is a high risk that more transparency will lead to coordination failures"--National Bureau of Economic Research web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 1/14/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.