Another look at the Radner-Stiglitz nonconcavity in the value of information

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Abstract

This paper revisits the well-known result of R. Radner and I Stightz (1984, in "Bayesian Models of Economic Theory," Elsevier, Amsterdam) which shows that, under certain conditions, the value of information exhibits increasing marginal returns over some range. Their result assumes that both the number of states and the number of signal realizations are finite, assumptions which preclude most analyses of optimal information acquisition. We provide sufficient conditions that yield this nonconcavity in the value of information in a general framework; the role that these conditions play is clarified and illustrated with several examples. We also discuss the robustness of the nonconcavity result, and the difficulties involved in getting the value of information to be globally concave.

Original languageEnglish (US)
Pages (from-to)421-452
Number of pages32
JournalJournal of Economic Theory
Volume107
Issue number2
DOIs
StatePublished - Dec 1 2002

Keywords

  • Information acquisition
  • Radner-Stiglitz non-concavity
  • Value of information

ASJC Scopus subject areas

  • Economics and Econometrics

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