Impacts of Public Information on Flexible Information Acquisition

TL;DR

This paper investigates how public information provision affects private information acquisition, uncertainty, and welfare in strategic settings, revealing conditions under which more public info can be beneficial or harmful.

Contribution

It provides a theoretical analysis of public information impacts in a linear-quadratic-Gaussian game, identifying when increased public info improves welfare and optimal disclosure strategies.

Findings

More public information increases uncertainty with strategic complementarity.

Increased public info reduces information costs when agents acquire large amounts of information.

Welfare can increase with public information under specific conditions, with optimal disclosure being full or partial.

Abstract

Interacting agents receive public information at no cost and flexibly acquire private information at a cost proportional to entropy reduction. When a policymaker provides more public information, agents acquire less private information, thus lowering information costs. Does more public information raise or reduce uncertainty faced by agents? Is it beneficial or detrimental to welfare? To address these questions, we examine the impacts of public information on flexible information acquisition in a linear-quadratic-Gaussian game with arbitrary quadratic material welfare. More public information raises uncertainty if and only if the game exhibits strategic complementarity, which can be harmful to welfare. However, when agents acquire a large amount of information, more provision of public information increases welfare through a substantial reduction in the cost of information. We give a necessary and sufficient condition for welfare to increase with public information and identify optimal public information disclosure, which is either full or partial disclosure depending upon the welfare function and the slope of the best response.