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The social value of income information in a model with market power and endogenous variety
Author(s) -
Szczutkowski Andreas
Publication year - 2007
Publication title -
international journal of economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 11
eISSN - 1742-7363
pISSN - 1742-7355
DOI - 10.1111/j.1742-7363.2007.00053.x
Subject(s) - monopolistic competition , economics , microeconomics , inefficiency , imperfect competition , market power , value of information , welfare , value (mathematics) , general equilibrium theory , perfect information , perfect competition , production (economics) , competitive equilibrium , monopoly , market economy , mathematical economics , machine learning , computer science
The present paper analyzes the value of public information in a general equilibrium economy with imperfect competition. The welfare effects of an improved information system for perfectly competitive economies have been extensively investigated in the published literature. Schlee (2001) shows that the value of information is always negative in exchange economies if an efficient risk sharing mechanism exists. In contrast, in economies with production, better information reduces welfare provided consumers are sufficiently risk‐averse (Eckwert and Zilcha 2000, 2003). In the present paper it will be shown that this result is robust if the production sector exhibits monopolistic competition in the Chamberlinian sense. Even so, the inefficiency of equilibria adds further potential for positive welfare effects of improved information. A model is presented where the degree of market imperfection is positively linked to the value of information. If the markup on competitive prices is sufficiently high, the value of information is positive; that is, better information increases economic welfare.