Public Announcement with Rational Ignorance

Abstract

We study a model where one information sender communicates with many information recipients. The sender provides a public good in the form of an announcement. The announcement involves a set of answers to some potential queries (e.g., frequently asked questions (FAQs), product manuals, and user guides). The sender also provides a private good in the form of a private communication service. Information recipients learn about their heterogeneous query and the size of the FAQs. The recipients then decide whether or not to consult the FAQs, and, when necessary, purchase the private communication service, the price of which is ex-post determined by the number of people who purchase the service at the same time. It is difficult to achieve efficiency in this model, when the queries are not observable by the sender. The inefficiency can be summarized by an under-provided public good (i.e., FAQs) and an overpriced private good (i.e., private communication) in equilibrium. A marginal change in the private communication capacity does not affect the equilibrium size of the FAQs.