The Social Value of Public Information When Not Everyone is Privately Informed

Abstract

When there is strategic complementarity and all agents have access to public information, but only a subset of them has access to private information, strategic complementarity within the subset of privately-informed agents enhances the focal power of public information. The resulting expected social welfare function is always convex in the precision of both private and public information, compared to the symmetric information case. The welfare gain from increasing the precision of the public information always exceeds the welfare loss from the underutilization of private information by a subset of agents. The findings are robust to several extensions such as biased perceptions about public signals and costly acquisition of private information. The results support the use of public information campaigns to change agent behavior regarding vaccine hesitancy and social injustices, and may also shed light on why consumer expectations of economic variables consistently differ from professional forecasts.