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Government Intervention and Information Aggregation by Prices
Author(s) -
BOND PHILIP,
GOLDSTEIN ITAY
Publication year - 2015
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12303
Subject(s) - transparency (behavior) , commit , economic interventionism , endogeneity , government (linguistics) , stock (firearms) , variety (cybernetics) , business , public economics , economics , stock market , information asymmetry , microeconomics , monetary economics , mechanical engineering , paleontology , linguistics , philosophy , horse , database , artificial intelligence , politics , computer science , political science , law , econometrics , biology , engineering
Governments intervene in firms' lives in a variety of ways. To enhance the efficiency of government intervention, many researchers and policy makers call for governments to make use of information contained in stock market prices. However, price informativeness is endogenous to government policy. We analyze government policy in light of this endogeneity. In some cases, it is optimal for a government to commit to limit its reliance on market prices to avoid harming the aggregation of information into market prices. For similar reasons, it is optimal for a government to limit transparency in some dimensions.