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Limited Attention as a Scarce Resource in Information-Rich Economies*

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  • *

     I thank Hartmut Egger, Volker Grossmann, Michel Habib, Timo Boppart and seminar participants in Munich, Tübingen and Bonn – in particular, Armin Falk – for valuable suggestions and comments. An early version of the article was presented in Vienna in May 2004 as the NÖG lecture at the Austrian Economic Association's Annual Meeting and I thank the participants there for the ensuing discussion. I also thank two anonymous referees for their very helpful suggestions.

Abstract

This article uses basic facts from the psychology of attention to show how the limited attention of consumers affects economic competition. The article determines endogenously whether an economy is information rich or information poor. A conventional economic equilibrium results if subjects have spare attention capacity. At the positive level, the respective impacts of advances in information technology, international integration and the media on equilibrium diversity and level of attention-seeking activities are shown. At the normative level, the issues of welfare, efficiency and optimal policy interventions are addressed.

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