Why Perfect Tests May Not be Worth Waiting For: Information as a Commodity

28 Pages Posted: 6 May 2020 Last revised: 14 Jan 2021

See all articles by Kimon Drakopoulos

Kimon Drakopoulos

University of Southern California

Ramandeep S. Randhawa

University of Southern California

Date Written: April 11, 2020

Abstract

Information products provide agents with additional information that is used to update their actions. In many situations, access to such products can be quite limited. For instance, in epidemics, there tends to be a limited supply of medical testing kits or tests. These tests are information products because their output of a positive or a negative answer informs individuals and authorities on the underlying state and the appropriate course of action. In this paper, using an analytical model, we show how the accuracy of a test in detecting the underlying state affects the demand for the information product differentially across heterogeneous agents. Correspondingly, the test accuracy can serve as a rationing device to ensure that the limited supply of information products is appropriately allocated to the heterogeneous agents. When test availability is low and the social planner is unable to allocate tests in a targeted manner to the agents, we find that moderately good tests can outperform perfect tests in terms of social outcome. On the policy side, we use a numerical study of an evolving epidemic to confirm our theoretically derived insight that in the early stages of an epidemic with low test availability, releasing a moderately good test can be an optimal strategy.

Keywords: Information Products, Information Operations, Epidemics, Testing

Suggested Citation

Drakopoulos, Kimon and Randhawa, Ramandeep S., Why Perfect Tests May Not be Worth Waiting For: Information as a Commodity (April 11, 2020). Available at SSRN: https://ssrn.com/abstract=3565245 or http://dx.doi.org/10.2139/ssrn.3565245

Kimon Drakopoulos (Contact Author)

University of Southern California ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

Ramandeep S. Randhawa

University of Southern California ( email )

Marshall School of Business
BRI 401, 3670 Trousdale Parkway
Los Angeles, CA 90089
United States

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