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The Rationality of Information Gathering: Monopoly
Author(s) -
Begg David K. H.,
Imperato Isabella
Publication year - 2001
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/1467-9957.00245
Subject(s) - monopoly , sunk costs , rationality , economics , private information retrieval , variance (accounting) , microeconomics , variable (mathematics) , process (computing) , information processing , econometrics , computer science , mathematics , mathematical analysis , computer security , accounting , neuroscience , political science , law , biology , operating system
This paper focuses on the optimal use of information in the presence of fixed, sunk, processing costs. The agent, being aware of the trade‐off between good (informed) forecasts and their cost, may decide to process her information only at discrete intervals of time. The optimal length of these intervals, during which no new information is taken on board, depends on the cost of processing information and on the variance of the stochastic variable to be monitored. These concepts are illustrated in a simple monopoly model and are extended to the cases of model uncertainty and the distinction between public and private monopoly.