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Why Perfect Tests May Not Be Worth Waiting For: Information as a Commodity

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  • K. Drakopoulos

    (Marshall School of Business, University of Southern California, Los Angeles, California 90089)

  • R. S. Randhawa

    (Marshall School of Business, University of Southern California, Los Angeles, California 90089)

Abstract

Information products provide agents with additional information that can be used to update actions. In many situations, access to such products can be quite limited. For instance, in epidemics, there tends to be a limited supply of medical testing kits, or tests. These tests are information products because their output of a positive or a negative answer informs individuals and authorities on the underlying state and the appropriate course of action. In this paper, using an analytical model, we show how the accuracy of a test in detecting the underlying state affects the demand for the information product differentially across heterogeneous agents. Correspondingly, the test accuracy can serve as a rationing device to ensure that the limited supply of information products is appropriately allocated to the heterogeneous agents. When test availability is low and the social planner is unable to allocate tests in a targeted manner to the agents, we find that moderately good tests can outperform perfect tests in terms of social outcome.

Suggested Citation

  • K. Drakopoulos & R. S. Randhawa, 2021. "Why Perfect Tests May Not Be Worth Waiting For: Information as a Commodity," Management Science, INFORMS, vol. 67(11), pages 6678-6693, November.
    • Handle: RePEc:inm:ormnsc:v:67:y:2021:i:11:p:6678-6693
    DOI: 10.1287/mnsc.2021.4029
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    References listed on IDEAS

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    Cited by:

    1. Bardey, David & De Donder , Philippe & Zaporozhets , Vera, 2024. "The Health Technology Assessment Approach of The Economic Value of Diagnostic Test: A Literature Review," Documentos CEDE 21041, Universidad de los Andes, Facultad de Economía, CEDE.

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