Information Processing and Limited Liability | Zendy

Bartosz Maćkowiak | Zendy; Mirko Wiederholt | Zendy

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Information Processing and Limited Liability

Author(s) -

Bartosz Maćkowiak,

Mirko Wiederholt

Publication year - 2012

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.102.3.30

Subject(s) - liability , limited liability , order (exchange) , process (computing) , face (sociological concept) , economics , strict liability , business , actuarial science , microeconomics , computer science , finance , sociology , operating system , social science

Decision-makers often face limited liability and thus know that their loss will be bounded. We study how limited liability affects the behavior of an agent who chooses how much information to acquire and process in order to take a good decision. We find that an agent facing limited liability processes less information than an agent with unlimited liability. The informational gap between the two agents is larger in bad times than in good times and when information is more costly to process.

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