Economic Theory

, Volume 66, Issue 4, pp 1059–1087 | Cite as

The social value of information with an endogenous public signal

  • Anna BayonaEmail author
Research Article


This paper analyzes the equilibrium and welfare properties of an economy characterized by uncertainty and payoff externalities using a general model that nests several applications. Agents receive a private signal and an endogenous public signal, which is a noisy aggregate of individual actions, and causes an information externality. Agents in equilibrium underweight private information for a larger payoff parameter region in relation to when public information is exogenous. In addition, the socially optimal endogenous degree of coordination is lower than the socially optimal exogenous degree of coordination. The welfare effect of increasing the precision of the noise in the public signal has the same sign with endogenous or exogenous public information, but its magnitude differs. The social value of private information may be overturned in relation to when public information is exogenous: from positive to negative if agents in equilibrium coordinate more than is implied by the socially optimal exogenous degree of coordination, and the opposite if they coordinate less.


Payoff externalities Information externalities Rational expectations equilibrium Private information Welfare analysis 

JEL Classification

D62 D82 G14 


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Copyright information

© Springer-Verlag GmbH Germany 2017

Authors and Affiliations

  1. 1.ESADE Business SchoolUniversitat Ramon LlullBarcelonaSpain

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