Information (in) Chains: Information Transmission Through Production Chains

Abstract

We study the transmission of information in a model with a vertical input-output structure and dispersed information. Firms observe input prices with noise that endogenize the precision of information that is public within a stage but not across stages. In contrast to the case with an exogenous and overall public signal, our main result is that agents may find it optimal to rely less on public information along the chain. A direct implication is that, while information precision remains unchanged with exogenous public signals (information chains), it may decrease along the chain when semi-public signals are endogenous (information in chains).