Spyros Galanis (University of Southampton)
Paper 1602
Abstract
The value of information is examined in a risk-sharing environment with unawareness and
complete markets. Information and awareness are symmetric among agents, who have a clear
understanding of their actions and deterministic payoffs. We show with examples that public
information can make some agents strictly better off at the expense of others, contrasting the
standard results of Hirshleifer [1971] and Schlee [2001] that the value of public information
is negative for all when risk averse agents are fully insured. We identify the source of this
problem to be that, as awareness varies across states, it creates an "awareness signal" that the
agents misunderstand and treat asymmetrically. As a result, risk-sharing opportunities that are
available when this signal is not used, vanish when it is used. Depending on the allocation of
endowments, this asymmetry makes some agents strictly better off and others strictly worse off.
We identify a property, Conditional Independence, which we show is sufficient for the value of
public information to be negative for all.