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Incentive compatible self-fulfilling mechanisms and rational expectations

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  • Huang, Xuesong

Abstract

This paper extends the exact equivalence result between the allocations realized by self-fulfilling mechanisms and rational expectations equilibrium allocations in Forges and Minelli (1997) to a large finite-agent replica economy where different replicas of the same agent are allowed to receive different private information. The first result states that the allocation realized by any incentive compatible self-fulfilling mechanism is an approximate rational expectations equilibrium allocation. Conversely, the second result states that, given any rational expectations equilibrium satisfying a “uniform continuity” condition on the equilibrium price, one can construct an approximate incentive compatible self-fulfilling mechanism whose equilibrium allocation coincides with the rational expectations equilibrium allocation for all non-monetary commodities.

Suggested Citation

  • Huang, Xuesong, 2021. "Incentive compatible self-fulfilling mechanisms and rational expectations," Games and Economic Behavior, Elsevier, vol. 126(C), pages 100-135.
    • Handle: RePEc:eee:gamebe:v:126:y:2021:i:c:p:100-135
    DOI: 10.1016/j.geb.2020.12.003
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    More about this item

    Keywords

    Rational expectations equilibrium; Strategic market game; Incentive compatible self-fulfilling mechanism; Large economy;
    All these keywords.

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation

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