| Popis: |
We examine how an informational feedback loop between bilateral security trading and firm investment endogenously affects information production. A trader's acquisition of information about a firm's investment opportunity can create an endogenous trade surplus that materializes only if trade may potentially break down. Because an exogenous private gain to trade is lost if trade is disrupted, however, the trader may not acquire such socially valuable information. Consequently, the firm, which makes its investment decision based on the trading outcome, may take socially destructive actions to induce the trader to acquire the information. Welfare-enhancing policies are examined. |
