The Cost of Information: The Case of Constant Marginal Costs
Luciano Pomatto, Philipp Strack, Omer Tamuz
American Economic Review · 2023 · Volume 113 · Issue 5
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.
Keywords
Asymmetric and Private Information, Mechanism Design, Search, Learning, Information and Knowledge, Communication, Belief, Unawareness
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