The Value of Scattered Information

Abstract

We analyze a model in which the value of a security is comprised of multiple distinct parts and private information about these pieces is scattered among investors. We show that as information is scattered into smaller, distinctively informative pieces, endogenous information acquisition activity can increase, even if the acquisition cost does not decrease. As a result, an information monopolist has an incentive to sell scattered information. Our model generates new insights and testable predictions about financial information markets, segmentation of firm-specific information, and informed trading.

Keywords: Asymmetric Information, Multiple Dimensions of Uncertainty, Information Acquisition, Information Monopolist

JEL Classification: D82, G14