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American Economic Review: Vol. 102 No. 3 (May 2012)

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Information Processing and Limited Liability

Article Citation

Mackowiak, Bartosz, and Mirko Wiederholt. 2012. "Information Processing and Limited Liability." American Economic Review, 102(3): 30-34.

DOI: 10.1257/aer.102.3.30

Abstract

Decision-makers often face limited liability and thus know that their loss will be bounded. We study how limited liability affects the behavior of an agent who chooses how much information to acquire and process in order to take a good decision. We find that an agent facing limited liability processes less information than an agent with unlimited liability. The informational gap between the two agents is larger in bad times than in good times and when information is more costly to process.

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Authors

Mackowiak, Bartosz (European Central Bank)
Wiederholt, Mirko (Northwestern U)

JEL Classifications

D83: Search; Learning; Information and Knowledge; Communication; Belief
D11: Consumer Economics: Theory
D81: Criteria for Decision-Making under Risk and Uncertainty


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