Efficiency under endogenous information choice: A price-setting application

Luis Gonzalo Llosa, Venkateswaran Venky

Research output: Contribution to journalArticle in a journalpeer-review

1 Scopus citations


Do private incentives to acquire information reflect the full social value of such information? We show that the answer to this question is typically negative in a canonical business cycle setting, where firms set prices under imperfect information about aggregate productivity. The wedge between private and social values of information is related to market power and ex-post inefficiencies in the use of information. The first reduces the private value of information (relative to its social value), while the second raises it. The overall sign of the inefficiency in information acquisition is therefore ambiguous. Implementing the informationally constrained efficient outcome requires a combination of fiscal and monetary policies—specifically, counter-cyclical revenue subsides as well as a monetary policy rule that targets a counter-cyclical aggregate price level.
Original languageEnglish
Pages (from-to)1619–1646
Number of pages28
JournalJournal of the European Economic Association
Issue number4
StatePublished - 1 Aug 2022
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2022 The Author(s). Published by Oxford University Press on behalf of European Economic Association.


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