The Social Value of Public Information with Costly Information Acquisition

In a beauty contest framework, we show that more precise public information contributes to higher welfare when the precision of private information is endogenous. We consider a Stackelberg game in which public authorities decide the accuracy of public information taking into account how this affects the acquisition of private information and the choice of individual actions in equilibrium. Because the acquisition of private information is costly, an increase in the precision of public information increases welfare by reducing the incentives for acquisition of private information, thereby inducing socially valuable savings of private resources.