Information Percolation with Equilibrium Search Dynamics

TL;DR

This paper models how individuals in a large population share information through search efforts, analyzing equilibrium behaviors, welfare implications of taxes, and effects of public signals on information dissemination.

Contribution

It introduces a dynamic equilibrium model of information sharing with search efforts, highlighting the impact of taxes and public signals on welfare and information flow.

Findings

Maximal search efforts lead to efficient information dissemination.

Tax subsidies can enhance information sharing and welfare.

Public signals may reduce information sharing and welfare.

Abstract

We solve for the equilibrium dynamics of information sharing in a large population. Each agent is endowed with signals regarding the likely outcome of a random variable of common concern. Individuals choose the effort with which they search for others from whom they can gather additional information. When two agents meet, they share their information. The information gathered is further shared at subsequent meetings, and so on. Equilibria exist in which agents search maximally until they acquire sufficient information precision, and then minimally. A tax whose proceeds are used to subsidize the costs of search improves information sharing and can in some cases increase welfare. On the other hand, endowing agents with public signals reduces information sharing and can in some cases decrease welfare.