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On the uniqueness of fully informative rational expectations equilibria

Author

Listed:
  • Peter DeMarzo

    () (J.L. Kellogg Graduate School of Management, Northwestern University, Evanston, IL 60208-2001, USA)

  • Costis Skiadas

    () (J.L. Kellogg Graduate School of Management, Northwestern University, Evanston, IL 60208-2001, USA)

Abstract

This paper analyzes two equivalent equilibrium notions under asymmetric information: risk neutral rational expectations equilibria (rn-REE), and common knowledge equilibria. We show that the set of fully informative rn-REE is a singleton, and we provide necessary and sufficient conditions for the existence of partially informative rn-REE. In a companion paper (DeMarzo and Skiadas (1996)) we show that equilibrium prices for the larger class of quasi-complete economies can be characterized as rn-REE. Examples of quasi-complete economies include the type of economies for which demand aggregation in the sense of Gorman is possible (with or without asymmetric information), the setting of the Milgrom and Stokey no-trade theorem, an economy giving rise to the CAPM with asymmetric information but no normality assumptions, the simple exponential-normal model of Grossman (1976), and a case of no aggregate endowment risk. In the common-knowledge context, we provide necessary and sufficient conditions for a common knowledge posterior estimate, given common priors, to coincide with the full communication posterior estimate.

Suggested Citation

  • Peter DeMarzo & Costis Skiadas, 1999. "On the uniqueness of fully informative rational expectations equilibria," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 13(1), pages 1-24.
  • Handle: RePEc:spr:joecth:v:13:y:1999:i:1:p:1-24
    Note: Received: May 29, 1997; revised version: July 18, 1997
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    Citations

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    Cited by:

    1. DeMarzo, Peter & Skiadas, Costis, 1998. "Aggregation, Determinacy, and Informational Efficiency for a Class of Economies with Asymmetric Information," Journal of Economic Theory, Elsevier, vol. 80(1), pages 123-152, May.
    2. Peter M. DeMarzo & Dimitri Vayanos & Jeffrey Zwiebel, 2003. "Persuasion Bias, Social Influence, and Unidimensional Opinions," The Quarterly Journal of Economics, Oxford University Press, vol. 118(3), pages 909-968.
    3. Michael Ostrovsky, 2012. "Information Aggregation in Dynamic Markets With Strategic Traders," Econometrica, Econometric Society, vol. 80(6), pages 2595-2647, November.

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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