The Welfare Effects of Information

TLDR: The willingness-to-pay criterion has been used to evaluate the welfare effects of information by reference to cost-benefit analysis as mentioned in this paper, which has been shown to be ineffective. But it has also been shown that people may lack the information that would permit them to say how much they would pay for (more) information, and their tastes and values may shift over time, in part as a result of information.

Abstract: Some information is beneficial; it makes people’s lives go better. Some information is harmful; it makes people’s lives go worse. Some information has no welfare effects at all; people neither gain nor lose from it. Under prevailing executive orders, agencies must investigate the welfare effects of information by reference to cost-benefit analysis. Federal agencies have (1) claimed that quantification of benefits is essentially impossible; (2) engaged in “breakeven analysis”; (3) projected various endpoints, such as health benefits or purely economic savings; and (4) relied on private willingness-to-pay for the relevant information. All of these approach0es run into serious objections. With respect to (4), people may lack the information that would permit them to say how much they would pay for (more) information; they may not know the welfare effects of information; and their tastes and values may shift over time, in part as a result of information. These points suggest the need to take the willingness-to-pay criterion with many grains of salt, and to learn more about the actual effects of information, and of the behavioral changes produced by information, on people’s experienced well-being.