The Social Value of Asymmetric Information Revisited

In contrary to previous literature, we show in the Grossman-Stiglitz model of noisy rational expectation that the social value of asymmetric information can be improved with more informative prices when being informed is uncertain. Investors always benefit from a privately payoff-relevant information, but they have to pay more to increase the probability of observing the information. In equilibrium, this trade-off can lead to high-risk, high return investments. Consequently the marginal expected utility gain from observing the information is not completely washed out by the cost of information acquisition, which leads to Pareto-optimal equilibrium and improves investors' welfare.