The Value of Scattered Information
We analyze a model in which the value of a security is comprised of multiple distinct parts and private information about these pieces is scattered among investors. We show that as information is scattered into smaller, distinctively informative pieces, endogenous information acquisition activity can increase, even if the acquisition cost does not decrease. Our paper generalizes Grossman-Stiglitz (1980) for an arbitrary number of distinct pieces of information and demonstrates that when information is scattered among investors, information free-riding can be alleviated. Our model generates new insights and testable predictions about financial information markets, segmentation of firm-specific information, and informed trading.