I am grateful to Bernhard Eckwert, Christian Hermelingmeier, and Itzhak Zilcha for several helpful suggestions.
The Social Value of Cost Information in a Monopolistically Competitive Economy
Article first published online: 28 MAR 2010
© 2010 Wiley Periodicals, Inc.
Journal of Public Economic Theory
Volume 12, Issue 2, pages 345–362, April 2010
How to Cite
SZCZUTKOWSKI, A. (2010), The Social Value of Cost Information in a Monopolistically Competitive Economy. Journal of Public Economic Theory, 12: 345–362. doi: 10.1111/j.1467-9779.2010.01454.x
- Issue published online: 28 MAR 2010
- Article first published online: 28 MAR 2010
- Received June 19, 2006; Accepted September 10, 2009.
An economy with monopolistic competition is endowed with an information system that produces a public information signal correlated to uncertain costs of production. Investment in the monopolistic competition sector is determined by consumers' savings under uncertainty. Savings are always lower than their efficient levels in the presented economy. If consumers' preferences exhibit prudence, then an improvement of the underlying information system (in the sense of Blackwell 1953) leads to a decrease of expected savings. The social value of information may be negative in that case from an ex ante point of view. Better information may strengthen the market failure caused by imperfect competition. Without precautionary saving (negative prudence), the social value of information is always positive.