American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
The Cost of Information: The Case of Constant Marginal Costs
American Economic Review
vol. 113,
no. 5, May 2023
(pp. 1360–93)
Abstract
We develop an axiomatic theory of information acquisition that captures the idea of constant marginal costs in information production: the cost of generating two independent signals is the sum of their costs, and generating a signal with probability half costs half its original cost. Together with Blackwell monotonicity and a continuity condition, these axioms determine the cost of a signal up to a vector of parameters. These parameters have a clear economic interpretation and determine the difficulty of distinguishing states.Citation
Pomatto, Luciano, Philipp Strack, and Omer Tamuz. 2023. "The Cost of Information: The Case of Constant Marginal Costs." American Economic Review, 113 (5): 1360–93. DOI: 10.1257/aer.20190185Additional Materials
JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness