The Welfare Effects of Public Information Under Proper Priors
22 Pages Posted: 20 Feb 2015 Last revised: 1 Jul 2016
Date Written: June 30, 2016
We re-examine the Morris and Shin (2002) model, but assume that players hold proper priors. This sharply alters equilibrium behavior, and welfare, particularly when coordination dominates individual payoffs. Whereas under improper priors the social value of public information is smallest, and possibly negative, in these situations, this is never true under proper priors. When coordination matters sufficiently, public information always has positive social value. With proper priors, the social value of public information always varies non-monotonically with coordination motives. The social value of public information can still be negative, but only when coordination motives are moderate. Despite these differences, the two models converge in the limit, though the rate of convergence varies markedly with the weight on coordination.
Keywords: Bayesian priors, social value of public information, coordination, aggregation games
JEL Classification: D82
Suggested Citation: Suggested Citation