Heterogeneous information quality; strategic complementarities and optimal policy design

The beauty-contest framework of Morris and Shin (2002) is extended to allow sub-groups within the population of agents to differ in the quality (i.e. precision) of their private information. We discuss the inefficiency of the resulting model's equilibrium, and assess the relative effectiveness in remedying this inefficiency of: (i) a Pigouvian tax scheme; (ii) direct policy intervention by means of an instrument which can modify the state of the world. The disclosure-policy implications of each of these two policy approaches are also analyzed.