Working Paper: NBER ID: w11537
Authors: Lars E.O. Svensson
Abstract: The main result of Morris and Shin (2002) (restated in papers by Amato, Morris, and Shin (2002) and Amato and Shin (2003) and commented upon by Economist (2004)) has been presented and interpreted as an anti-transparency result: more public information can be bad. However, some scrutiny of the result shows that it is actually pro transparency: except in very special circumstances, more public information is good. Furthermore, for a conservative benchmark of equal precision in public and private information, social welfare is higher than in a situation without public information.
Keywords: No keywords provided
JEL Codes: D82; D83; E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased transparency (higher precision of public information) (G38) | Increased social welfare (D69) |
| Weight on public vs private signals appropriately balanced (D79) | Increased social welfare (D69) |
| Noise in public information < 8 times noise in private information (D89) | Increased social welfare (D69) |
| Weight r < 1/2 or r > 1 (C29) | Decrease in social welfare (D69) |