اصول، اطلاعات، و سرمایه بین المللی جریان: تجزیه و تحلیل رفاه اجتماعی

In the recent discussion surrounding the design of a new international financial architecture, enhancing transparency has widely been proposed as a policy essential for increasing the efficiency of international capital markets. This paper uses a simple two-country (two-agent) general equilibrium model with incomplete markets and production to explore the welfare consequences of an increase in public information about country-specific fundamentals (increase in transparency). An improvement in the quality of information has two effects on the ex ante welfare of individual countries: A direct effect that increases the efficiency of global capital allocation and welfare, and an indirect general equilibrium effect that increases asset price volatility and may decrease welfare. When the degree of risk-aversion is low, at least one country will gain from an increase in information quality. If the degree of risk-aversion is high, then there are robust examples of economies for which an increase in information hurts all countries. The paper also discusses how certain institutional arrangements (international derivative markets, international agency) could ensure that all countries gain from better information by providing insurance against information-induced asset price risk.

Beginning in the early 1970s, there has been a worldwide trend towards integration of national financial markets resulting in a strong increase in cross-border financial transactions and capital flows. More recently, capital flows from industrial countries to emerging market economies have dramatically surged.1 In the wake of the recent financial market crises, policy makers and prominent academics have made several proposals for a “new international financial architecture”. Although opinions on the exact nature of this new architecture differ, there seems to be almost unanimous agreement on at least one point: Information about country-specific fundamentals (transparency) has to be improved.2 This unanimous agreement seems somewhat surprising since it is well-known that with incomplete markets more information may decrease the ex ante welfare of all agents because of its negative impact on risk sharing (Hirshleifer, 1971).3 However, the previous formal literature on the welfare effect of public information in general equilibrium models has focused on exchange economies, and the neglect of production might have led this literature to overstate the case against information. This paper therefore explores the welfare implications of an increase in the quality of public information within the context of a two-country (two-agent) general equilibrium model with production and incomplete asset markets. The model is a one-good economy with exponential (CARA) utility functions and normally distributed random variables. Each country has access to a country-specific linear production function with capital as the only input factor. In addition, countries have the opportunity to trade a risk-free bond in competitive markets (international borrowing and lending without default). There are country-specific shocks to economic fundamentals (technology and/or fiscal policy shocks), and countries make investment decisions after they have received a public signal about the future shock realization. This paper derives a closed-form solution for all endogenous variables and uses this solution to discuss how a change in the precision of the signal variable affects the equilibrium values of the bond price (interest rate), capital flows (investment), and welfare (ex ante expected utility of each country). The analysis shows that an improvement in information quality (more transparency) always leads to an increase in the volatility of capital flows and the bond price (interest rate). In other words, a decrease in the conditional variance of future fundamentals increases the unconditional variance of equilibrium prices and quantities. The net effect on the welfare of individual countries is in general ambiguous since there are two opposing effects: A positive direct effect due to a more efficient global capital allocation, and an indirect general equilibrium effect due to the change in the mean and volatility of the bond price. The indirect effect on welfare may or may not be negative. This paper shows that when agents are not too risk averse, at least one country will gain from an increase in information quality. In other words, for low degree of risk-aversion the negative welfare result stressed by the previous general equilibrium literature is not possible. However, if agents are risk-averse enough, then it is still possible that an increase in information quality makes all countries worse off, that is, there is an open set of economies for which more information decreases the welfare of all countries. The proof of this result relies on the fact that for high degree of risk-aversion, the increase in bond price volatility is sufficiently strong to wipe out all potential gains from more information. Thus, even though the explicit treatment of the capital allocation decision strengthens the case in favor of more transparency (more information), policy makers are still well-advised to take into account the possibly harmful general-equilibrium effects of enhanced transparency. There is a simple economic rationale for the increase in the volatility of international bond prices and capital flows. Consider a basic neoclassical model of the world economy and suppose that the future amount of fiscal spending is the only uncertain macroeconomic variable determining the future economic performance of individual countries. Suppose further that each country's level of fiscal spending is drawn from an i.i.d. process with distribution known to all agents (the rational expectations hypothesis). If in each period only the current level of fiscal spending is observed, then expectations about future economic fundamentals do not vary over time. Thus, investors’ demand for internationally traded bonds is constant implying constant values for equilibrium bond prices and capital flows – the case of zero volatility. If, however, the government of a particular country releases in each period some information about its projected future fiscal position, then investors’ expectations, and therefore the equilibrium values of financial market prices and capital flows, will vary over time – the case of positive volatility. Hence, the decision of the government to increase fiscal transparency has led to an increase in the volatility of bond prices and capital flows. The preceding welfare discussion assumes that agents cannot fully insure against information-induced bond-price risk: With full insurance, agents do not worry about bond-price movements, and the welfare effect of more information is always positive. Although this paper is mainly concerned with the consequences of increases in information quality when markets for information-induced risk are incomplete, it also discusses how certain institutional arrangements could ensure that all countries will gain from an increase in information by providing the missing insurance opportunities. One such arrangement is an international financial system in which all agents have the opportunity to trade a complete set of securities with news-contingent payoffs before the arrival of news. Clearly, in reality there are few, if any, securities whose payoffs vary directly with news about economic fundamentals of a country. Moreover, the number of securities must be in general very large, namely as large as the number of possible news realizations. For the economy considered in this paper, however, a few derivative contracts suffice even though there are “many” (a continuum of) news realizations. More precisely, it is shown that if all countries have the opportunity to trade three securities whose payoffs depend in a non-linear but differentiable fashion on the bond price (interest rate), then all countries will gain from enhanced transparency. Finally, this paper shows that even without derivative markets, all countries gain from an increase in information quality if an international agency makes transfer payments (provides concessional loans) to countries experiencing news-induced capital outflows. Following the early contribution by Hirshleifer (1971), several papers have studied the welfare effects of public information in general equilibrium models (Berk and Uhlig, 1993; Danthine and Moresi, 1993; Eckwert and Zilcha, 2003; Green, 1981; Orosel, 1996; Schlee, 2001).4 However, with the exception of Eckwert and Zilcha (2003) this literature has confined attention to pure exchange economies, and has therefore ruled out by assumption any positive effect of information on the allocation of capital. Eckwert and Zilcha (2003) consider an economy in which all tradable assets are priced in a risk neutral way, and show that information about non-tradable risk always has a positive social value. In contrast, this paper follows the macroeconomic asset pricing literature (Lucas, 1978; Mehra and Prescott, 1985)5 and assumes that agents are risk averse. As shown in this paper, the assumption of risk averse asset pricing implies that information about non-tradable risk (productivity or fiscal policy risk) might have a negative effect on social (world) welfare since it increases asset price volatility.

This paper used a simple neoclassical model of the world economy to discuss the welfare effect of improving transparency. The analysis showed that an increase in the quality of information can reduce the ex ante welfare of all countries because of an increase in bond price volatility. If, however, there are institutions providing insurance against information-induced bond-price risk, then enhancing transparency always makes all countries better off. Throughout this paper, the increase in information was interpreted as resulting from improvements in the collection and dissemination of macroeconomic data by governments of individual countries. Clearly, the range of applications of the formal analysis is much broader. On an international level, there are several reasons in addition to enhanced transparency why financial integration might increase the quality of publicly available information about country-specific fundamentals.18 On a national level, the amount of publicly available information about domestic financial market conditions often changes. The analysis conducted in this paper suggests that there is a general relationship between information and the volatility of asset prices which can be tested using financial market data on the national and international level. In this respect, the present theoretical analysis draws attention to a crucial distinction between conditional and unconditional variance not always sufficiently emphasized by the empirical literature: A decrease in the conditional variance of future discount factors and/or asset payoffs increases the unconditional variance of asset prices. This paper traced out the welfare consequences of an exogenous increase in the quality of publicly available information. The next step in the analysis is to endogenize the choice of information quality. For example, one could imagine that individual governments choose the quality of information strategically taking into account the general equilibrium effects of their choices, and one could ask how the process of international financial integration affects the equilibrium choice of information by governments.19 Such an extension is beyond the more narrowly defined scope of this paper, but the analysis carried out here might provide a useful starting point for future work on this issue.