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Non-neutral information costs with match-value uncertainty
Jönköping University, Jönköping International Business School, JIBS, Economics.
2013 (English)In: Journal of Economics, ISSN 0931-8658, E-ISSN 1617-7134, Vol. 109, no 1, 1-25 p.Article in journal (Refereed) Published
Abstract [en]

This paper investigates a model featuring a monopolist seller and a buyer with an uncertain valuation for the seller’s product. The seller chooses an information system which allows the buyer to receive a private signal, potentially correlated with her valuation. No restrictions are imposed on the conditional distributions of the signal; the cost of the information system is proportional to its precision, measured by the mutual information between the distributions of the buyer’s valuation and the signal. In equilibrium, the information system trades off the information cost against the losses deriving from a probability of trade that is either “too high,” or “too low”—depending on the relative weight of the expected losses resulting from errors of the two types—and sends “non-neutral” signals, typically. Thus, in general, the probability of a correct signal depends on the buyer’s actual valuation, and the probability of trade differs from the probability of a valuation exceeding the cost of production. The expected total surplus generated by the exchange is maximized, in equilibrium.

Place, publisher, year, edition, pages
2013. Vol. 109, no 1, 1-25 p.
Keyword [en]
Match-value, Information provision, Mutual information, Bayesian learning
National Category
Economics and Business
Identifiers
URN: urn:nbn:se:hj:diva-18345DOI: 10.1007/s00712-012-0283-7OAI: oai:DiVA.org:hj-18345DiVA: diva2:531807
Available from: 2012-06-08 Created: 2012-06-08 Last updated: 2013-09-11Bibliographically approved

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Manduchi, Agostino
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CiteExportLink to record
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Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
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Language
  • de-DE
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  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
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  • text
  • asciidoc
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