Journal of Economic Theory, Vol.188 (July, 2020)
Abstract
People seek to learn about world events, but often also what others know about those events—for instance, to coordinate their actions. News sources rely on monetizing people’s attention to thrive in the market. We find that competition for attention leads to a homogeneous supply of information: News sources are equally accurate in reporting events and equally clear in conveying their reports. This occurs even though people would demand different accuracies and clarities. The type of supplied sources depends on a subtle interaction between the cost structure of producing information and people’s coordination motives. We also find that by becoming the “currency” whereby people pay for information, attention causes novel market inefficiencies, whose form and size depend on people’s coordination motives. We investigate supply-side policies tackling such inefficiencies.