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Strongly rational expectations equilibria with endogenous acquisition of information

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Author Info

  • Gabriel Desgranges

    ()
    (University of Cergy-Pontoise, France)

  • Maik Heinemann

    ()
    (Institute of Economics, University of Lüneburg)

Abstract

This paper analyzes conditions for existence of a strongly rational expectations equilibrium (SREE) in models with private information, where the amount of private information is endogenously determined. It is shown that the conditions for existence of a SREE known from models with exogenously given private information do not change as long as it is impossible to use the information transmitted through market prices. In contrast, these conditions are too weak, when there is such learning from prices. It turns out that the properties of the function which describes the costs that are associated with the individual acquisition of information are important in this respect. In case of constant marginal costs, prices must be half as informative than private signals in order for a SREE to exist. An interpretation of this result that falls back on the famous Grossman– Stiglitz–Paradox is also given.

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Bibliographic Info

Paper provided by University of Lüneburg, Institute of Economics in its series Working Paper Series in Economics with number 9.

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Length: 33 pages
Date of creation: 17 Mar 2005
Date of revision:
Handle: RePEc:lue:wpaper:9

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Related research

Keywords: Eductive Learning; Private Information; Rational Expectations; Strongly Rational Expectations Equilibrium;

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References

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  1. Sanford J Grossman & Joseph E Stiglitz, 1997. "On the Impossibility of Informationally Efficient Markets," Levine's Working Paper Archive 1908, David K. Levine.
  2. Guesnerie, Roger, 1992. "An Exploration of the Eductive Justifications of the Rational-Expectations Hypothesis," American Economic Review, American Economic Association, vol. 82(5), pages 1254-78, December.
  3. R. Guesnerie, 2002. "Anchoring Economic Predictions in Common Knowledge," Econometrica, Econometric Society, vol. 70(2), pages 439-480, March.
  4. Maik Heinemann, 2002. "Existence of Strongly Rational Expectations Equilibria on Asset Markets with Asymmetric Information," Computing in Economics and Finance 2002 57, Society for Computational Economics.
  5. Gabriel Desgranges & Pierre-Yves Geoffard & Roger Guesnerie, 2003. "Do Prices Transmit Rationally Expected Information?," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 124-153, 03.
  6. Maik Heinemann, 2003. "Are Rational Expectations Equilibria with Private Information Eductively Stable?," Computing in Economics and Finance 2003 267, Society for Computational Economics.
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Citations

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Cited by:
  1. Roger Guesnerie & Pedro Jara-Moroni, 2011. "Expectational coordination in simple economic contexts," Economic Theory, Springer, vol. 47(2), pages 205-246, June.
  2. Roger Guesnerie, 2008. "Macroeconomic and monetary policies from the "eductive" viewpoint," PSE Working Papers halshs-00586749, HAL.
  3. Jara-Moroni, Pedro, 2012. "Rationalizability in games with a continuum of players," Games and Economic Behavior, Elsevier, vol. 75(2), pages 668-684.
  4. repec:hal:wpaper:halshs-00587837 is not listed on IDEAS
  5. Ingrid Ott & Susanne Soretz, 2006. "Nachhaltige Entwicklung durch endogeneUmweltwahrnehmung," Working Paper Series in Economics 24, University of Lüneburg, Institute of Economics.
  6. repec:hal:wpaper:halshs-00586749 is not listed on IDEAS
  7. Maik Heinemann, 2010. "Stability under learning of equilibria in financial markets with supply information," Economics Bulletin, AccessEcon, vol. 30(1), pages 383-391.
  8. repec:hal:wpaper:halshs-00574957 is not listed on IDEAS
  9. Ingrid Ott & Susanne Soretz, 2006. "Governmental activity and private capital adjustment," Working Paper Series in Economics 26, University of Lüneburg, Institute of Economics.

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