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Equilibrium, Price Formation, and the Value of Private Information

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Author Info
Jackson, Matthew O

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Abstract

An economy is analyzed in which agents first choose whether to acquire costly information about the return to a risky asset, and then choose demand functions that determine the allocation of assets. It is a well-known paradox that if agents are price-takers and prices are fully revealing, then an equilibrium with costly information acquisition does not exist. It is shown that if the price formation process is modeled explicitly and agnets are not price-takers, then it is possible to have an equilibrium with fully revealing prices and costly information acquisition. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

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File URL: http://www.jstor.org/fcgi-bin/jstor/listjournal.fcg/08939454
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Publisher Info
Article provided by Oxford University Press for Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 4 (1991)
Issue (Month): 1 ()
Pages: 1-16
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:oup:rfinst:v:4:y:1991:i:1:p:1-16

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Web: http://www4.oup.co.uk/revfin/subinfo/

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Matthew O. Jackson & James Peck, 1997. "Asymmetric Information in a Competitive Market Game: Reexamining the Implications of Rational Expectations," Microeconomics 9711004, EconWPA. [Downloadable!]
    Other versions:
  2. Yuriy Gorodnichenko, 2008. "Endogenous information, menu costs and inflation persistence," NBER Working Papers 14184, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Alessandro, CITANNA & Archishman, CHAKRABORTY, 1999. "Moral Hazard, Aggregate Risk and Nominal Linear Financial Contracts," Les Cahiers de Recherche 683, HEC Paris. [Downloadable!]
  4. Marc Andreas Muendler, 2004. "The Existence of Informationally Efficient Markets When Individuals Are Rational," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  5. Aditya Goenka, 2000. "Informed Trading and the "Leakage" of Information," Economics Discussion Papers 528, University of Essex, Department of Economics. [Downloadable!]
    Other versions:
  6. Matthew O. Jackson & James Peck, 1993. "Costly Information Acquisition," Discussion Papers 1087, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  7. Marc-Andreas Muendler, 2005. "Rational Information Choice in Financial Market Equilibrium," University of California at San Diego, Economics Working Paper Series 2005-04, Department of Economics, UC San Diego. [Downloadable!]
    Other versions:
  8. Ariadna Dumitrescu, 2003. "Imperfect Competition and Market Liquidity with a Supply Informed Trader," UFAE and IAE Working Papers 591.03, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
  9. SHerrill Shaffer, 2008. "Strategic Risk Aversion," CAMA Working Papers 2008-25, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
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