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Value of Information in Competitive Economies with Incomplete Markets

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  • Piero Gottardi

    ()

  • Rohit Rahi

    (Departments of Economics and Finance, London School of Economics)

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 this information ex-post Pareto dominates the given equilibrium allocation.

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File URL: http://www.unive.it/media/allegato/DIP/Economia/Working_papers/Working_papers_2007/WP_DSE_gottardi_rahi_25_07.pdf
File Function: Revised version, 2007
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Bibliographic Info

Paper provided by Department of Economics, University of Venice "Ca' Foscari" in its series Working Papers with number 2007_25.

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Length: 24
Date of creation: 2007
Date of revision:
Handle: RePEc:ven:wpaper:2007_25

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Keywords: Competitive Equilibrium; Incomplete Markets; Value of Information.;

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  1. Gottardi, Piero & Rahi, Rohit, 2001. "Efficiency Properties of Rational Expectations Equilibria with Asymmetric Information," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2922, C.E.P.R. Discussion Papers.
  2. Green, Jerry R, 1981. "Value of Information with Sequential Futures Markets," Econometrica, Econometric Society, Econometric Society, vol. 49(2), pages 335-58, March.
  3. David Cass & Alessandro Citanna, 1998. "Pareto improving financial innovation in incomplete markets," Economic Theory, Springer, Springer, vol. 11(3), pages 467-494.
  4. Bengt Holmstrom & Roger B. Myerson, 1981. "Efficient and Durable Decision Rules with Incomplete Information," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 495, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Colin M. Campbell, 2002. "Blackwell's Ordering and Public Information," Departmental Working Papers, Rutgers University, Department of Economics 200206, Rutgers University, Department of Economics.
  6. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(2), pages 193-227, April.
  7. Edward E. Schlee, 2001. "The Value of Information in Efficient Risk-Sharing Arrangements," American Economic Review, American Economic Association, American Economic Association, vol. 91(3), pages 509-524, June.
  8. 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, American Finance Association, vol. 37(5), pages 1169-81, December.
  9. Eckwert, Bernhard & Zilcha, Itzhak, 2001. "The Value of Information in Production Economies," Journal of Economic Theory, Elsevier, Elsevier, vol. 100(1), pages 172-186, September.
  10. Greenwald, Bruce C & Stiglitz, Joseph E, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 101(2), pages 229-64, May.
  11. Alessandro Citanna & Antonio Villanacci, . "Incomplete markets, allocative efficiency and the information revealed by prices," GSIA Working Papers, Carnegie Mellon University, Tepper School of Business 10, Carnegie Mellon University, Tepper School of Business.
  12. Atsushi Kajii & Antonio Villanacci & Alessandro Citanna, 1998. "Constrained suboptimality in incomplete markets: a general approach and two applications," Economic Theory, Springer, Springer, vol. 11(3), pages 495-521.
  13. Lawrence Blume & Tarek Coury & David Easley, 2006. "Information, trade and incomplete markets," Economic Theory, Springer, Springer, vol. 29(2), pages 379-394, October.
  14. Hirshleifer, Jack, 1971. "The Private and Social Value of Information and the Reward to Inventive Activity," American Economic Review, American Economic Association, American Economic Association, vol. 61(4), pages 561-74, September.
  15. Michael Magill & Martine Quinzii, 2002. "Theory of Incomplete Markets, Volume 1," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262632543, December.
  16. Magill, Michael & Shafer, Wayne, 1991. "Incomplete markets," Handbook of Mathematical Economics, Elsevier, in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 30, pages 1523-1614 Elsevier.
  17. Milne, Frank & Shefrin, H. M., 1987. "Information and securities: A note on pareto dominance and the second best," Journal of Economic Theory, Elsevier, Elsevier, vol. 43(2), pages 314-328, December.
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Cited by:
  1. Piero Gottardi & Rohit Rahi, 2013. "Risk sharing and retrading in incomplete markets," Economic Theory, Springer, Springer, vol. 54(2), pages 287-304, October.

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