Heterogenous Information Choice in General Equilibrium

We study the incentives of heterogeneous households to acquire information about the state of the economy. In the standard Krusell and Smith (1998) environment, where households differ in their labor productivity and asset holdings, we find that: i) when agents use current productivity and aggregate capital to condition expectations (the Krusell and Smith (1998) benchmark), expected utility losses from forming expectations equal to unconditional means correspond to less than 0:05 percent of lifetime consumption. In other words, the Krusell and Smith (1998) information structure is an equilibrium only if information is essentially free. ii) when all agents decide to not acquire information beyond the unconditional mean of the capital distribution, the capital stock is significantly more volatile. This increases the loss of not using the current capital stock to forecast future variables to between 0:5 and 3:5 percent of lifetime consumption, depending on the level of capital. iii) The individual benefits of information acquisition under ii) strongly depend on an individual’s position in the wealth distribution and the aggregate capital stock.