. DECEMBER PARETO-OPTIMALITY OF AUTHENTIC INFORMATION S. DAVID NG* I. INTRODUCTION A NUMBER OF RECENT PAPERS have examined the social value of information generation under homogeneous beliefs.â It is shown that in a pure exchange economy, where individuals have homogeneous beliefs and time-additive utility functions, information generation does not lead to an increase in social welfare (either in terms of commodity dominance or of ex-unte Pareto-optimality2), A question that naturally arises is whether publicly available information would produce an ex-ante Pareto-improvement in resource allocation when individuals have heterogeneous beliefs. Stiglitz [121 has examined the value of information under heterogeneous beliefs. Using results from the theory of screening, he concludes that the private returns to the provision of information do not, in general, correspond to the social returns. He suggests that there is likely to be excessive spending on âhierarchical inf~rmationâ~ and too little spending on âmatching inf~rmation.ââ~ Marshall  has briefly considered the situation in which individualsâ beliefs are heterogeneous. He concludes that publicly available information may have social value in the sense that traders can agree to purchase information and both can benefit in terms of ex-ante satisfaction. However, both he and Stiglitz have not analyzed when
The Journal of Finance – Wiley
Published: Dec 1, 1977
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