Information economies with taste diversity and bounded attention spans

Abstract

AbstractWe consider an economy with a countably infinite number of consumers and pure public information goods. Each of these differentiated products is produced by a single monopoly firm that enters the market if it can cover costs. Thus, the product space is endogenous. We assume that the population of agents has diverse tastes, but bounded attention spans for content. We show that this implies that at all Pareto efficient allocations, all agents consume a finite number of public goods, and that each public good is consumed by a finite number of agents. In effect, these two taste assumptions turn pure public goods into what amount to club goods, despite the lack of rivalry in consumption or crowding of any type. Unfortunately, the equilibrium outcomes of Tiebout-like competition between public good providers do not satisfy the First Welfare Theorem. Even non-anonymous Lindahlian price systems are not sufficient to signal all profit opportunities to firms. We conclude that information markets are likely to be inefficient, and there will always remain opportunities for economic profits in an information economy.