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On the equivalence of rational expectations equilibrium with perfect Bayesian equilibrium

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  • Cheng-Zhong Qin

    (Nanjing Audit University
    University of California at Santa Barbara)

  • Xintong Yang

    (Capital University of Economics and Business)

Abstract

A sequential variation of the Arrow–Debreu abstract economy is developed to closely capture the timing of moves of the Walrasian general equilibrium model. Instead of inducing a pseudo- game, the extensive form game of our sequential variation is well defined. It is shown that when information is symmetric, Walrasian equilibrium allocations are equivalent to subgame-perfect equilibrium allocations. When information is asymmetric, rational expectations equilibrium allocations are shown to be equivalent to perfect Bayesian equilibrium allocations. These results are useful for understanding and characterizing Walrasian and rational expectations equilibrium allocations.

Suggested Citation

  • Cheng-Zhong Qin & Xintong Yang, 2020. "On the equivalence of rational expectations equilibrium with perfect Bayesian equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 69(4), pages 1127-1146, June.
  • Handle: RePEc:spr:joecth:v:69:y:2020:i:4:d:10.1007_s00199-019-01192-w
    DOI: 10.1007/s00199-019-01192-w
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    References listed on IDEAS

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    Cited by:

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    3. Zhiwei Liu & Nicholas C. Yannelis, 2022. "Mixed strategy implementation under ambiguity," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 10(1), pages 167-181, May.
    4. Maria Gabriella Graziano & Claudia Meo & Nicholas C. Yannelis, 2020. "Shapley and Scarf housing markets with consumption externalities," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(5), pages 1481-1514, September.
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    6. Caetano, Rafaela Vital & Marques, António Cardoso, 2023. "Could energy transition be a game changer for the transfer of polluting industries from developed to developing countries? An application of game theory," Structural Change and Economic Dynamics, Elsevier, vol. 65(C), pages 351-363.
    7. Huiyi Guo & Nicholas C. Yannelis, 2022. "Incentive compatibility under ambiguity," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 73(2), pages 565-593, April.

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    More about this item

    Keywords

    Abstract economy; Perfect Bayesian equilibrium; Rational expectations equilibrium; Subgame-perfect equilibrium; Walrasian equilibrium;
    All these keywords.

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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