Information Inequality and Role of Public Information

Abstract

Transparent disclosures of public information might be one natural policy to reduce information inequality among individuals. We conduct a welfare analysis of such policy by introducing ex-ante heterogeneity in individuals' private information in a class of economies with dispersed information and externalities. We find that, paradoxically, welfare unambiguously increases when information inequality widens through greater precision of private information for the already informationally-rich individuals. We also show that the greater the information inequality, the more likely that public information reduces welfare. Our findings suggest caution in making information policies that aim to narrow informational gap with better public information.

Keywords: Information inequality, public information, disclosure, welfare, coordination

JEL Classification: D62, D83, E58, E61