NOTES ON THE PRIVATE AND SOCIAL VALUE OF INFORMATION

Abstract

Abstract : Recent research on the 'economics of information' has examined the acquisition and dissemination of information in a context where uncertainty attaches to the supply-demand offers of potential market partners. In this paper markets are assumed to be perfect, and uncertainty is attached to each individual's perception of his own endowment and productive opportunities. The private and public values of sure prior information are compared where individuals aim to distribute their consumption optimally over dates and states. Under pure exchange, information as to which future state will obtain is generally of enormous private value but of no social value; hence there is an incentive for individuals to expend resources in a socially wasteful way to generate and disseminate this information. In a world of production and exchange these results are modified somewhat, since prior public information will affect production decisions in the appropriate way. It is shown that there still remains a bias, suggesting that private investigations into the question of which state does or will obtain (e.g., private scientific research) are carried beyond what is socially optimal. On the other hand, there is a strong presumption that the dissemination of information will be socially valuable. Thus, the government should support industrial research less but industrial espionage more.