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General equilibrium with private state verification

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  • João Correia-da-Silva

    ()
    (CEMPRE and Faculdade de Economia, Universidade do Porto, Portugal)

  • Carlos Hervés-Beloso

    ()
    (RGEA and Facultad de Económicas, Universidad de Vigo, Spain)

Abstract

We study general equilibrium with private and incomplete state verification. Trade is agreed ex ante, that is, before private information is received. It is useful to define a list of bundles as a derivative good that gives an agent the right to receive one of the bundles in the list. Enforceable trade agreements can be described by Pi-measurable plans of lists of bundles, instead of Pi-measurable plans of bundles as in Radner (1968). In equilibrium, the price of a list coincides with the price of the cheapest bundle in the list, and it is always the cheapest bundle of the list that is delivered. This property leads to a system of linear inequalities which are deliverability constraints on the choice set. We investigate existence of equilibrium in the case in which preferences are Pi-measurable. If there is a perfectly informed trader in the economy, existence of equilibrium is guaranteed.

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Bibliographic Info

Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 269.

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Length: 57 pages
Date of creation: Mar 2008
Date of revision:
Handle: RePEc:por:fepwps:269

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Keywords: General equilibrium; Differential information; Verifiability; Uncertain delivery; Lists of bundles; Rational expectations;

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  1. Prescott, Edward C & Townsend, Robert M, 1984. "Pareto Optima and Competitive Equilibria with Adverse Selection and Moral Hazard," Econometrica, Econometric Society, Econometric Society, vol. 52(1), pages 21-45, January.
  2. FORGES, Françoise & MINELLI, Enrico & VOHRA, Rajiv, 2001. "Incentives and the core of an exchange economy: a survey," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2001043, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Pradeep Dubey & John Geanakoplos & Martin Shubik, 2001. "Default and Punishment in General Equilibrium," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1304, Cowles Foundation for Research in Economics, Yale University.
  4. FORGES, Françoise & HEIFETZ , Aviad & MINELLI, Enrico, . "Incentive compatible core and competitive equilibria in differential information economies," CORE Discussion Papers RP -1555, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Belén Jerez, 2003. "Incentive Compatibility And Pricing Under Moral Hazard," Economics Working Papers we035722, Universidad Carlos III, Departamento de Economía.
  6. Bisin, Alberto & Gottardi, Piero, 1999. "Competitive Equilibria with Asymmetric Information," Journal of Economic Theory, Elsevier, vol. 87(1), pages 1-48, July.
  7. Edward Simpson Prescott & Robert M. Townsend, 2006. "Firms as Clubs in Walrasian Markets with Private Information," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 114(4), pages 644-671, August.
  8. L. W. McKenzie, 2010. "The Classical Theorem on Existence of Competitive Equilibrium," Levine's Working Paper Archive 1388, David K. Levine.
  9. Radner, Roy, 1979. "Rational Expectations Equilibrium: Generic Existence and the Information Revealed by Prices," Econometrica, Econometric Society, Econometric Society, vol. 47(3), pages 655-78, May.
  10. Yannelis, Nicholas C, 1991. "The Core of an Economy with Differential Information," Economic Theory, Springer, Springer, vol. 1(2), pages 183-97, April.
  11. MINELLI, Enrico & POLEMARCHAKIS, Heracles, 1999. "Nash-Walras equilibria of a large economy," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1999043, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  12. Allen, Beth E, 1981. "Generic Existence of Completely Revealing Equilibria for Economies with Uncertainty when Prices Convey Information," Econometrica, Econometric Society, Econometric Society, vol. 49(5), pages 1173-99, September.
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Cited by:
  1. Joao Correia-da-Silva, 2009. "Uncertain delivery in markets for lemons," Levine's Working Paper Archive 814577000000000121, David K. Levine.

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