Optimal Degree of Public Information Dissemination

Abstract

Financial markets and macroeconomic environments are often characterised by positive externalities. In these environments, transparency may reduce expected welfare: public announcements serve as focal points for higher-order beliefs and affect agents' behaviour more than justified by their informational contents. Some scholars conclude that reducing public signals' precision or entirely withholding information may improve welfare. This article shows that public information should always be provided with maximum precision but, under certain conditions, not to all agents. Restricting the degree of publicity is a better-suited instrument for preventing the negative welfare effects of public announcements than restrictions on their precision are. Copyright � 2008 The Author(s).

Measuring agents’ reaction to private and public information in games with strategic complementarities

“…0 1 3 / < − < r β α . Thus, in contrast to the conclusion from the equilibrium analysis in Cornand and Heinemann (2008), public information needs to be sufficiently less precise than private information to justify limited publicity.…”

“…These findings establish our theoretical main result and partially turn around the results that have been obtained for fully rational agents. Finally, reconsidering the optimal degree of publicity, introduced by Cornand and Heinemann (2008), we find that this optimal degree is higher if agents apply level-2 reasoning than if they follow equilibrium strategies, but it may still be lower than full publicity. However, if public information is more precise than private information, for level-2 reasoning it is optimal to be fully transparent.…”

“…Svensson (2006) has argued that detrimental welfare effects of public information are unlikely, because they require that public information be of lower precision than private information, which conflicts with empirical findings. 2 Cornand and Heinemann (2008) argue that central banks should release information with the highest possible precision, but (under certain conditions) to just a fraction of all traders. They show that limiting the degree of publicity can be welfare improving even when public information is more precise than private information.…”

One-leader and multiple-follower Stackelberg games with private information

“…1 Other studies in the literature include Angeletos and Pavan (2004), Nakamura (2011, 2013), Cornand and Heinemann (2008), Myatt (2008, 2012), Hellwig (2002), Lawler (2011, 2012a,b), Morris and Shin (2007), Svensson (2006), and Myatt and Wallace (2014).…”

Central banks' voting records, the financial crisis and future monetary policy

“…While theoretical research has mainly focused on the welfare effects of increased transparency (Morris and Shin, 2002, Angeletos and Pavan, 2007, Cornand and Heinemann, 2008, Dale et al, 2011, Hahn, 2012, empirical research has examined the implications of increased transparency with respect to monetary policy predictability (Gerlach-Kristen, 2004, Crowe, 2010, Sturm and de Haan, 2011, Horvath et al, 2012a, macroeconomic outcomes (Dincer and Eichengreen, 2014) and dissent among central bankers (Meade and Stasavage, 2008).…”