The Value of Ignorance

RAND JOURNAL OF ECONOMICS, Vol. 29, no. 2

Posted: 9 Mar 1998

See all articles by Anke S. Kessler

Anke S. Kessler

Simon Fraser University (SFU) - Department of Economics; University of Bonn - Economic Science Area; Centre for Economic Policy Research (CEPR)

Abstract

I provide a new perspective on the information structure of an agent in a standard model of adverse selection. Before the contracting takes place, the agent has the opportunity to gather (private) information on a relevant parameter that affects final payoffs. I allow for the possibility that the agent remains uninformed with some probability. The agent's optimal choice of information structure is derived and it is shown that in the case of two states of nature, the possibility of remaining ignorant has a positive strategic value for the agent. Since a poor information structure generates strategic benefits, there will be no equilibrium in which the agent is perfectly informed even if additional information is costless at the margin.

JEL Classification: D81, D82

Suggested Citation

Kessler, Anke S., The Value of Ignorance. RAND JOURNAL OF ECONOMICS, Vol. 29, no. 2. Available at SSRN: https://ssrn.com/abstract=65393

Anke S. Kessler (Contact Author)

Simon Fraser University (SFU) - Department of Economics ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada
604-291-3443 (Phone)
604-291-5944 (Fax)

University of Bonn - Economic Science Area ( email )

Adenauerallee 24-42
D-53113 Bonn
Germany
+49 228 739 246 (Phone)
+49 228 739 221 (Fax)

HOME PAGE: http://www.wipol.uni-bonn.de/~kessler/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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