Rational inattention and public signals

In this paper, I study the incentives to produce public signals in a rational inattention setting. Agents working in teams must take two actions, but are uncertain about the optimal actions. One optimal action has a ‘private’ signal associated with it—if an agent pays attention to it, only her uncertainty about the optimal action is reduced. But the other has a ‘public’ signal associated with it—if an agent pays attention to it, the uncertainty of all agents is reduced. The result is a new collective action problem in attention allocation. In the Nash equilibrium, too little attention is paid to the optimal action with the public signal relative to the efficient allocation. Even as the number of agents increases, they remain uncertain about the optimal action—in contrast to a social planner who eliminates all uncertainty. And this has surprising implications for thinking about the optimal size of teams.