Presenter: Stephanie L. Chan (Xiamen University)
When there is strategic complementarity and all agents have access to public information, but only a subset of them has access to private information, I find that expected social welfare is increasing in the precision of both private and public information. In contrast to Morris and Shin [2002] who find that public information that is too precise tends to crowd out private information when all agents have access to both private and public information, limiting the measure of privately-informed agents makes these agents rely relatively less on private information than public information. There is a resulting interaction between the fraction of privately-informed agents and the coordination motive parameter in the optimal action of privately-informed agents that carries over when aggregating agents’ actions and leads to an expected social welfare function that is convex in the precision of both private and public information. The power of public information as a coordination device is therefore enhanced and my results may be applied in contexts where coordination is a good instead of a bad, such as when dealing with public health crises and addressing social injustices. The findings are robust to several extensions including when public signals are biased and when increasing the precision of public and private information is costly.