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Large economies with differential information and without free disposal

  • Laura Angeloni


  • V. Martins-da-Rocha


We consider exchange economies with a continuum of agents and differential information about finitely many states of nature. It was proved in Einy, Moreno, and Shitovitz (2001) that if we allow for free disposal in the market clearing (feasibility) constraints then an irre- ducible economy has a competitive (or Walrasian expectations) equilibrium, and moreover, the set of competitive equilibrium allocations coincides with the private core. However when feasibility is defined with free disposal, competitive equilibrium allocations may not be in- centive compatible and contracts may not be enforceable (see e.g. Glycopantis, Muir, and Yannelis (2002)). This is the main motivation for considering equilibrium solutions with exact feasibility. We first prove that the results in Einy, Moreno, and Shitovitz (2001) are still valid without free-disposal. Then, motivated by the issue of contracts’ execution, we adapt the incentive compatibility property introduced in Krasa and Yannelis (1994) and we prove that every Pareto optimal exact feasible allocation is incentive compatible, implying that contracts of competitive or core allocations are enforceable.

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Article provided by Springer in its journal Economic Theory.

Volume (Year): 38 (2009)
Issue (Month): 2 (February)
Pages: 263-286

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Handle: RePEc:spr:joecth:v:38:y:2009:i:2:p:263-286
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  1. Wassim Daher & V. Filipe Martins-Da-Rocha & Yiannis Vailakis, 2005. "Asset market equilibrium with short-selling and differential information," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00173787, HAL.
  2. Carlos Hervés-Beloso & V. Martins-da-Rocha & Paulo Monteiro, 2009. "Equilibrium theory with asymmetric information and infinitely many states," Economic Theory, Springer, vol. 38(2), pages 295-320, February.
  3. Yannelis, Nicholas C, 1991. "The Core of an Economy with Differential Information," Economic Theory, Springer, vol. 1(2), pages 183-97, April.
  4. Koutsougeras, Leonidas C & Yannelis, Nicholas C, 1993. "Incentive Compatibility and Information Superiority of the Core of an Economy with Differential Information," Economic Theory, Springer, vol. 3(2), pages 195-216, April.
  5. Dionysius Glycopantis & Allan Muir & Nicholas C. Yannelis, 2003. "On extensive form implementation of contracts in differential information economies," Economic Theory, Springer, vol. 21(2), pages 495-526, 03.
  6. Hildenbrand, Werner, 1970. "Existence of Equilibria for Economies with Production and a Measure Space of Consumers," Econometrica, Econometric Society, vol. 38(5), pages 608-23, September.
  7. Carlos Hervés-Beloso & Emma Moreno-García & Nicholas Yannelis, 2005. "Characterization and incentive compatibility of Walrasian expectations equilibrium in infinite dimensional commodity spaces," Economic Theory, Springer, vol. 26(2), pages 361-381, 08.
  8. Krasa, Stefan & Yannelis, Nicholas C, 1994. "The Value Allocation of an Economy with Differential Information," Econometrica, Econometric Society, vol. 62(4), pages 881-900, July.
  9. Ezra Einy & Diego Moreno & Benyamin Shitovitz, 2001. "Competitive and core allocations in large economies with differential information," Economic Theory, Springer, vol. 18(2), pages 321-332.
  10. Einy, Ezra & Shitovitz, Benyamin, 2001. "Private Value Allocations in Large Economies with Differential Information," Games and Economic Behavior, Elsevier, vol. 34(2), pages 287-311, February.
  11. Guangsug Hahn & Nicholas C. Yannelis, 1997. "Efficiency and incentive compatibility in differential information economies," Economic Theory, Springer, vol. 10(3), pages 383-411.
  12. Vind, Karl, 1972. "A Third Remark on the Core of an Atomless Economy," Econometrica, Econometric Society, vol. 40(3), pages 585-86, May.
  13. Cornet, Bernard & Topuzu, Mihaela & Yildiz, Aysegul, 2003. "Equilibrium theory with a measure space of possibly satiated consumers," Journal of Mathematical Economics, Elsevier, vol. 39(3-4), pages 175-196, June.
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