Information Percolation with Equilibrium Search Dynamics
61 Pages Posted: 29 Jan 2009 Last revised: 27 Nov 2009
Date Written: January 27, 2009
Abstract
We solve for the equilibrium dynamics of information sharing in a large population. Each agent is endowed with signals regarding the likely outcome of a random variable of common concern. Individuals choose the effort with which they search for others from whom they can gather additional information. When two agents meet, they share their information. The information gathered is further shared at subsequent meetings, and so on. Equilibria exist in which agents search maximally until they acquire sufficient information precision, and then minimally. A tax whose proceeds are used to subsidize the costs of search improves information sharing and can in some cases increase welfare. On the other hand, endowing agents with public signals reduces information sharing and can in some cases decrease welfare.
Keywords: search, matching, equilibrium, information, percolation
JEL Classification: C78, C73, C62
Suggested Citation: Suggested Citation
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