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Non-implementation of rational expectations as a perfect Bayesian equilibrium

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  • Dionysius Glycopantis

    ()

  • Allan Muir

    ()

  • Nicholas Yannelis

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    Abstract

    We point out several conceptual difficulties of the rational expectations equilibrium concept. In particular we show that such an equilibrium need not be incentive compatible and need not be implementable as a perfect Bayesian equilibrium . A comparison of rational expectations equilibria with the private core is also provided. We conclude that the private core is a more appropriate concept to capture the idea of contracts under asymmetric information. Copyright Springer-Verlag Berlin/Heidelberg 2005

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    File URL: http://hdl.handle.net/10.1007/s00199-004-0585-2
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    Bibliographic Info

    Article provided by Springer in its journal Economic Theory.

    Volume (Year): 26 (2005)
    Issue (Month): 4 (November)
    Pages: 765-791

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    Handle: RePEc:spr:joecth:v:26:y:2005:i:4:p:765-791

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    Web page: http://link.springer.de/link/service/journals/00199/index.htm

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    Related research

    Keywords: Differential information economy; Rational expectations equilibrium; Coalitional Bayesian incentive compatibility; Implementation; Game trees; Private core.;

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    Cited by:
    1. Xiaojuan Hu & Cheng-Zhong Qin, 2013. "Information acquisition and welfare effect in a model of competitive financial markets," Economic Theory, Springer, vol. 54(1), pages 199-210, September.
    2. Correia-da-Silva, João & Hervés-Beloso, Carlos, 2008. "Subjective expectations equilibrium in economies with uncertain delivery," Journal of Mathematical Economics, Elsevier, vol. 44(7-8), pages 641-650, July.
    3. Erik Balder & Nicholas Yannelis, 2009. "Bayesian–Walrasian equilibria: beyond the rational expectations equilibrium," Economic Theory, Springer, vol. 38(2), pages 385-397, February.
    4. Jamsheed Shorish, 2010. "Functional rational expectations equilibria in market games," Economic Theory, Springer, vol. 43(3), pages 351-376, June.
    5. Dionysius Glycopantis & Allan Muir & Nicholas Yannelis, 2009. "On non-revealing rational expectations equilibrium," Economic Theory, Springer, vol. 38(2), pages 351-369, February.
    6. Marialaura Pesce & Peter Cramton & Nicholas C. Yannelis, 2010. "A new perspective to rational expectations: maximin rational expectations equilibrium," Discussion Papers 1528, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    7. Sun, Yeneng & Wu, Lei & Yannelis, Nicholas C., 2012. "Existence, incentive compatibility and efficiency of the rational expectations equilibrium," Games and Economic Behavior, Elsevier, vol. 76(1), pages 329-339.

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