Information Inequality and Role of Public Information

Abstract

Transparent disclosures of public information might be one natural policy to reduce information inequality among individuals. We conduct a welfare analysis of such policy by introducing ex-ante heterogeneity in individuals' private information in a class of economies with dispersed information and strategic complementarity or substitutability. We nd that better private information for the already privately better-informed individuals increases welfare, even though it may be accompanied by greater information inequality. We also show that the better the private information for the already better-informed individuals, the more likely that increasing precision of public information reduces welfare. Our findings suggest caution in making information policies that aim to narrow informational gap with better public information.

Keywords: Information inequality, public information, disclosure, welfare, coordination

JEL Classification: D62, D83, E58, E61