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Title: |
Aggregate Risk and Social Value of Information
in a Production Economy |
| Author: |
Lee, Young Whan |
| Author
Affiliation: |
Dongguk U |
| Source: |
International Economic Journal, Winter 1999, v. 13, no. 4, pp. 81-100 |
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Publication Date: |
Winter 1999 |
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Abstract: |
This paper examines the effect of the
degree of aggregate risk on social value of information in a production
economy with a stock market. If the risk is firm-specific and there is
no aggregate risk, public information will be socially harmful rather
than valuable when there are no new markets for signal-contingent
trades. We show that this result can be extended to the economy under
small aggregate risk. In this case, the welfare gain from the increase
in production efficiency due to public information is dominated by the
welfare loss from the reduced risk-sharing opportunities. Also, these
results can be extended to the case of private information due to the
property of the generically fully revealing rational expectations
equilibrium. |
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