Policy Announcements and Welfare
Year: 2013
Type: article
Abstract: In the presence of idiosyncratic risk, the public revelation of information about uncertain aggregate outcomes such as policy choices can be detrimental to social welfare. By announcing informative signals on non-insurable aggregate risk, the policy maker distorts agents’ insurance incentives and increases the riskiness of the optimal allocation that is feasible in self-enforceable arrangements. As an application, we consider a monetary authority that may reveal changes in the inflation target, and document that the negative effect of distorted insurance incentives can very well dominate conventional effects in favor for the release of better information.
Source: The Economic Journal
DOI: 10.1111/ecoj.12024
Authors: Vadym Lepetyuk, Christian A. Stoltenberg
Institutions: University of Alicante, University of Amsterdam
Language: English
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2148281110