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Efficiency Properties of Rational Expectations Equilibria with Asymmetric Information

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Author Info
Rohit Rahi (London School of Economics)

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Abstract

We analyze the welfare properties of rational expectations equilibria (REE) in economies with asymmetrically informed agents and incomplete markets. We ask whether a planner can improve upon an equilibrium allocation, using an individually rational and incentive compatible mechanism, and subject to the same asset constraints as agents. For an REE that reveals any information at all, the planner can generically bring about an interim Pareto improvement even conditional on the information that is available to agents in equilibrium. He can do so by altering prices while keeping their informational content fixed. Furthermore, for any partially revealing equilibrium, the planner can generically effect an ex post Pareto improvement by providing more information to agents, while controlling for price effects.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1468.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:1468

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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. Forges Francoise, 1994. "Posterior Efficiency," Games and Economic Behavior, Elsevier, vol. 6(2), pages 238-261, March. [Downloadable!] (restricted)
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  2. Postlewaite, Andrew & Schmeidler, David, 1986. "Implementation in differential information economies," Journal of Economic Theory, Elsevier, vol. 39(1), pages 14-33, June. [Downloadable!] (restricted)
  3. Citanna, Alessandro & Villanacci, Antonio, 2000. "Incomplete Markets, Allocative Efficiency, and the Information Revealed by Prices," Journal of Economic Theory, Elsevier, vol. 90(2), pages 222-253, February. [Downloadable!] (restricted)
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  4. Holmstrom, Bengt & Myerson, Roger B, 1983. "Efficient and Durable Decision Rules with Incomplete Information," Econometrica, Econometric Society, vol. 51(6), pages 1799-819, November. [Downloadable!] (restricted)
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  5. Gul, Faruk & Postlewaite, Andrew, 1992. "Asymptotic Efficiency in Large Exchange Economies with Asymmetric Information," Econometrica, Econometric Society, vol. 60(6), pages 1273-92, November. [Downloadable!] (restricted)
  6. Tom Krebs, 1999. "Information and Efficiency in Financial Market Equilibrium," Working Papers 99-20, Brown University, Department of Economics.
  7. Stiglitz, Joseph E, 1982. "The Inefficiency of the Stock Market Equilibrium," Review of Economic Studies, Blackwell Publishing, vol. 49(2), pages 241-61, April. [Downloadable!] (restricted)
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  1. Juan Hatchondo, 2004. "The value of information with heterogeneous agents and partially revealing prices," Econometric Society 2004 North American Summer Meetings 175, Econometric Society. [Downloadable!]
  2. Juan Carlos Hatchondo, 2005. "The value of information with heterogeneous agents and partially revealing prices," Working Paper 05-06, Federal Reserve Bank of Richmond. [Downloadable!]
  3. Piero Gottardi & Rohit Rahi, 2007. "Value of Information in Competitive Economies with Incomplete Markets," Working Papers 2007_25, University of Venice "Ca' Foscari", Department of Economics. [Downloadable!]
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