Implications of More Precise Information for Technological Development and Welfare

Author/Editor:

Bernhard Eckwert ; Burkhard Drees

Publication Date:

April 1, 2007

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper analyzes the dynamic interactions between the precision of information, technological development, and welfare within an overlapping generations model. More precise information about idiosyncratic production shocks has ambiguous effects on technological progress and welfare, which depend critically on the risk sharing capacity of the economy's financial system. For example, we show that with efficient risk sharing more precise information adversely affects the equilibrium risk allocation and creates a negative uncertainty-related welfare effect, at the same time as it accelerates technological progress and increases R&D investment.

Series:

Working Paper No. 07/95

Subject:

English

Publication Date:

April 1, 2007

ISBN/ISSN:

9781451866599/1018-5941

Stock No:

WPIEA2007095

Format:

Paper

Pages:

23

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