The welfare effect of disclosure through media: a zero-sum case
We extend the beauty contest framework to allow the disclosure of the authority to be received with an additional noise, the realization of which varies among agents. In this setup, we find that there could be a situation in which an anti-transparency policy maximizes welfare however precise the signal the authority can obtain.
In a beauty contest framework developed by Morris and Shin (2002, henceforth MS), public information, which is interpreted as a disclosure of economic forecast by the authority, may be harmful to social welfare; that is, anti-transparency may be optimal. However, the robustness of their result has been questioned. Angeletos and Pavan (2004) and Hellwig (2005) show that MS’s result depends on the form of the payoff function. Svensson (2006) claims that even in MS’s model, public information increases welfare under plausible parameter values.