Non-rivalrous News Production and International Uncertainty Contagion

Abstract

Using global games, we develop a theory of uncertainty contagion by introducing non-rivalrous news production into a two-country model. In our model, news production is allocated between a common aggregate process and an idiosyncratic country-specific process. Since non-rivalrous news about the aggregate process in one country can be reproduced in another, this reduces uncertainty and creates information externalities across countries. When uncertainty about the foreign country-specific process increases, strategic substitutability occurs as foreign and domestic countries reallocate news production away from and toward the aggregate process, respectively. This leads to higher uncertainty about the domestic country specific process in both countries, resulting in international uncertainty contagion. Additionally, this co-movement is stronger during periods of heightened uncertainty about the aggregate process, as countries rely more on foreign news reproduction. Our findings suggest that policies addressing externalities arising from non-rivalrous news production can enhance efficiency.

Keywords: Non-rivalrous News, News Reproduction, Uncertainty, Contagion, Global Games

JEL Classification: E7, D8, E32, F44