This project studies equilibrium, efficiency and policy in economies with dispersed information about commonly-relevant economic fundamentals, such as the profitability of new technologies, returns to financial assets, or aggregate productivity and demand conditions. Previous work studied the equilibrium use of information, and its implications for welfare, assuming that all information is exogenous. The current project extends the theory so as to accommodate endogenous channels of information aggregation, such as the observation of data on past aggregate activity, prices in financial markets, as well as endogenous collection of private information.
The project then proceeds by identifying potential inefficiencies in the way information is processed in equilibrium and studying policies that may correct such inefficiencies, without allowing the government to centralize information. The policy exercise considered here is novel and is consistent with Hayek's view that "the economic problem of society is ... a problem of the utilization of knowledge which is not given to anyone in its totality."
Broader impacts
The broader impacts of this research are to (i) deepen the theoretical understanding of the positive and normative properties of an important class of models; (ii) bring the theory closer to real-world applications; (iii) identify potential sources of volatility and inefficiency in financial markets, investment, or the business cycle; and (iv) guide policy towards improving the way dispersed information is used in decentralized market economies.
