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Value of Information in Competitive Economies with Incomplete Markets

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  • Rohit Rahi

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  • Piero Gottardi

Abstract

A substantial literature addresses the negative effect on welfare of the release of information in a competitive market economy. We show that the value of information in this setting is typically positive if asset markets are sufficiently incomplete. More specifically, for any competitive equilibrium of a generic economy, we can find a finer information structure such that an allocation that is resource feasible and measurable with respect to thisinformation ex-post Pareto dominates the given equilibrium allocation.Journal of Economic Literature Classification Numbers: D52, D60, D80.Keywords: Competitive Equilibrium, Incomplete Markets, Value of Information.

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Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp596.

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Date of creation: Sep 2007
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Handle: RePEc:fmg:fmgdps:dp596

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  1. Alessandro Citanna & Antonio Villanacci, . "Incomplete markets, allocative efficiency and the information revealed by prices," GSIA Working Papers 10, Carnegie Mellon University, Tepper School of Business.
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  12. David Cass & Alessandro Citanna, 1998. "Pareto improving financial innovation in incomplete markets," Economic Theory, Springer, vol. 11(3), pages 467-494.
  13. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
  14. Hakansson, Nils H & Kunkel, J Gregory & Ohlson, James A, 1982. " Sufficient and Necessary Conditions for Information to Have Social Value in Pure Exchange," Journal of Finance, American Finance Association, vol. 37(5), pages 1169-81, December.
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  17. Green, Jerry R, 1981. "Value of Information with Sequential Futures Markets," Econometrica, Econometric Society, vol. 49(2), pages 335-58, March.
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Cited by:
  1. Piero Gottardi & Rohit Rahi, 2012. "Risk-Sharing and Retrading in Incomplete Markets," Economics Working Papers ECO2012/03, European University Institute.

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