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Costly Acquisition of Information with Incomplete Markets

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  • Marta Laitenberger
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    Abstract

    In this paper we introduce markets for information about assets' payoffs in a two-period General Equilibrium Incomplete Markets Model. We consider asymmetric Walrasian equilibria with endogenous information allocations and analyze the interaction between demand for information and equilibrium asset prices. We conclude that for economies with a high payoff uncertainty there only exist full information equilibria. In an application of the model, we use this result to show that it can be profitable for an intermediary to supply an investment fund of asssets and buy the informaton about assets' payoffs. The resulting equilibrium Pareto-improves the equilibrium without intermediation. Thus, if information and its costly acquisition are taken into account, the existence of redundant assets can be explained by the model.

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    Bibliographic Info

    Paper provided by University of Bonn, Germany in its series Discussion Paper Serie A with number 518.

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    Date of creation: Apr 1996
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    Handle: RePEc:bon:bonsfa:518

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    Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
    Fax: +49 228 73 6884
    Web page: http://www.bgse.uni-bonn.de

    Related research

    Keywords: Incomplete Markets; Asymmetric Information; Financial Intermediation;

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