Public and private value of information. Continuing with the model in Question 8, suppose that, before the state of the world is revealed and before the market in state-contingent income claims opens,...

Public and private value of information. Continuing with the model in Question 8, suppose that, before the state of the world is revealed and before the market in state-contingent income claims opens, one of the individuals is given a perfect forecasting device which will tell her what the state of the world will be. (a) What effect will this have on her transactions in the state-contingent income markets and thus on her income in each state? (Assume her transactions are small relative to the market and so do not alter the price of state-contingent income claims.) (b) What effect will it have on her expected utility? (c) How much would she be willing to pay to acquire such a device? (d) What would be the effect if the forecasts of the device were made public before the markets open? (e) What is the social value of such a device?