Policy with Dispersed Information

By George-Marios Angeletos, Alessandro Pavan. 2007

143 citations recorded by the source corpus.

This paper studies policy in a class of economies in which information about commonly-relevant fundamentals -- such as aggregate productivity and demand conditions -- is dispersed and can not be centralized by the government. In these economies, the decentralized use of information can fail to be efficient either because of discrepancies between private and social payoffs, or because of informational externalities. In the first case, inefficiency manifests itself in excessive non-fundamental volatility (overreaction to common noise) or excessive cross-sectional dispersion (overreaction to idiosyncratic noise). In the second case, inefficiency manifests itself in suboptimal social learning (low quality of information contained in macroeconomic data, financial prices, and other indicators of economic activity). In either case, a novel role for policy is identified: the government can improve welfare by manipulating the incentives agents face when deciding how to use their available sources of information. Our key result is that this can be achieved by appropriately designing the contingency of marginal taxes on aggregate activity. This contingency permits the government to control the reaction of equilibrium to different types of noise, to improve the quality of information in prices and macro data, and, in overall, to restore efficiency in the decentralized use of information.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/da8c20f4391e504e936bf154b684f5cb9b726054

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In Economics and Econometrics

Citations in the corpus

Imperfect Information and Aggregate Supply (2010, unknown): “ Finally, Angeletos and Pavan (2007, 2009) provide a more general, but also more abstract, characterization of efficiency and optimal policy with incomplete information.”
Knowing What Others Know: Coordination Motives in Information Acquisition (2007, unknown): “However, Dewan and Myatt (2007) and Angeletos and Pavan (2007a) pointed out gaps in their original proof, and Angeletos and Pavan (2007b) propose an alternative proof for uniqueness.”
Communication and influence (2015, background): “This is a common assumption in the literature that uses the normal-quadratic approach, but while there are no known counterexamples, it is not obvious to show that only linear equilibria are possible (e.g., Angeletos and Pavan 2009, Dewan and Myatt 2008).”
Learning from Prices: Public Communication and Welfare (2010, unknown): “…decision that maximizes (6) if one were to assume that workers’ information sets are learning from prices 877 exogenously given.14 From the work of Angeletos and Pavan (2007), it follows that public information would always be beneficial in our framework if the information structure were…”
Information Acquisition and Welfare (2014, methodology): “Contrary to Angeletos and Pavan (2007), however, we allow agents to choose the amount of private information they collect.”
Optimal Monetary Policy with Uncertain Fundamentals and Dispersed Information (2009, methodology): “I can then substitute for pit and dit using (6) and (7), and exploit the fact that all idiosyncratic shocks have zero mean ex ante.”
Strategic Supply Function Competition with Private Information (2008, methodology): “The welfare analysis in the supply function model contrasts thus with the one in models where there is no endogenous public signal such as the Cournot market in Vives (1988), the beauty contest in Morris and Shin (2002), or the general linear-quadratic set up of Angeletos and Pavan (2007). With Cour”