Welfare Effects Of Information Research Articles

Ruining popcorn? The welfare effects of information

Some information is beneficial; it makes people’s lives go better. Some information is harmful; it makes people’s lives go worse. Some information has no welfare effects at all; people neither gain nor lose from it. Under prevailing executive orders, federal agencies must investigate the welfare effects of information by reference to cost-benefit analysis. Federal agencies have (1) claimed that quantification of benefits is essentially impossible; (2) engaged in “breakeven analysis”; (3) projected various endpoints, such as health benefits or purely economic savings; and (4) relied on private willingness to pay for the relevant information. All of these approaches run into serious objections. With respect to (4), people may lack the information that would permit them to make good decisions about how much to pay for (more) information; they may not know the welfare effects of information. Their tastes and values may shift over time, in part as a result of information. These points suggest the need to take the willingness-to-pay criterion with many grains of salt, and to learn more about the actual effects of information, and of the behavioral changes produced by information, on people’s experienced well-being.

The Welfare Effects of Information

Some information is beneficial; it makes people’s lives go better. Some information is harmful; it makes people’s lives go worse. Some information has no welfare effects at all; people neither gain nor lose from it. Under prevailing executive orders, agencies must investigate the welfare effects of information by reference to cost-benefit analysis. Federal agencies have (1) claimed that quantification of benefits is essentially impossible; (2) engaged in “breakeven analysis”; (3) projected various endpoints, such as health benefits or purely economic savings; and (4) relied on private willingness-to-pay for the relevant information. All of these approach0es run into serious objections. With respect to (4), people may lack the information that would permit them to say how much they would pay for (more) information; they may not know the welfare effects of information; and their tastes and values may shift over time, in part as a result of information. These points suggest the need to take the willingness-to-pay criterion with many grains of salt, and to learn more about the actual effects of information, and of the behavioral changes produced by information, on people’s experienced well-being.

Characterizing social value of information

This paper characterizes the social value of information in Bayesian games with symmetric quadratic payoff functions and normally distributed public and private signals. The main result provides a necessary and sufficient condition for welfare to increase with public or private information. In so doing, we represent welfare as a linear combination of the variance of a common term in an equilibrium strategy and that of an idiosyncratic term, which are referred to as the common variance and the idiosyncratic variance of actions, respectively. The ratio of their coefficients is a key parameter in our condition. If the coefficient of the common variance is relatively large, welfare necessarily increases, but if it is relatively small, welfare can decrease. Using our condition, we find eight types of games with different welfare effects of information.

Can Horizontal Mergers Without Synergies Increase Consumer Welfare? Cournot and Bertrand Competition Under Uncertain Demand

Abstract We analyze the welfare effects of horizontal mergers in a model wherein firms produce differentiated products and possess asymmetric information about uncertain market demand. Mergers do not bring about synergies or cost savings, but do allow firms to share their market demand information. We find that under Cournot competition, mergers without synergies could increase expected consumer surplus and social welfare, provided that market volatility is sufficiently large. The parameter spaces in which mergers are beneficial to consumers and society widen when products are more differentiated. In contrast, under Bertrand competition, mergers are always welfare reducing regardless of the degree of market volatility and extent of product differentiation. The driving force for the contrasting results lies in opposing welfare effects of information sharing in the contexts of quantity and price setting.

The Conservation and Welfare Effects of Information in a Time-of-Day Pricing Experiment

A recurring concern in TOD pricing studies has been that short term experimental TOD rates may not stimulate as much conservation as would occur if TOD rates were implemented on a permanent basis. That is, how accurately do experimental TOD pricing results extend to nonexperimental settings? The present paper provides information relevant to this adjustment question. We examine a little analyzed component of the TOD pricing experiment conducted by the Southern California Edison (SCE) Company, wherein a subset of the TOD treatment households had a continuous-display, electricity use monitoring device installed mid- way through the experiment. The SCE experiment was one of 14 TOD pricing studies initiated by the U.S. Department of Energy (DOE). Most analyses of TOD pricing have been based on DOE-initiated studies, but this experiment was the only such study to include the monitoring component.