Costly Acquisition of Information with Incomplete Markets
AbstractIn 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 InfoPaper provided by University of Bonn, Germany in its series Discussion Paper Serie A with number 518.
Date of creation: Apr 1996
Date of revision:
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Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
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Web page: http://www.bgse.uni-bonn.de
Incomplete Markets; Asymmetric Information; Financial Intermediation;
Find related papers by JEL classification:
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G20 - Financial Economics - - Financial Institutions and Services - - - General
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