Another Look at the Radner-Stiglitz Nonconcavity in the Value of Information

Abstract

This paper revisits the well-known result of Radner and Stiglitz (1984) which shows that, under certain conditions, the value of information exhibits increasing marginal returns over some range. Their result assumes that both the number of states and the number of signal realization are finite, assumptions which preclude most analyses of optimal information acquisition. We provide sufficient conditions that yield this 'nonconcavity' in the value of information in a general framework; the role that these conditions play is clarified and illustrated with several examples. We also discuss the robustness of the nonconcavity result, and the difficulties involved in getting the value of information to be globally concave.

Keywords: value of information, information acquisition, Radner-Stiglitz nonconcavity

JEL Classification: D83