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On the limit points of an infinitely repeated rational expectations equilibrium

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  • Marialaura Pesce

    (Università di Napoli “Federico II”
    Universitá di Napoli “Federico II”, Complesso Universitario Monte Sant’Angelo Via Cintia)

  • Niccolò Urbinati

    (Università di Napoli “Federico II”)

  • Nicholas C. Yannelis

    (The University of Iowa)

Abstract

We study the rational expectations equilibrium (REE) in the framework of a repeated economy. In each repetition agents observe the sequence of asymmetric REE’s occurred in the past to update their private information. We show that, in the limit, agents reach a symmetric information REE which exists universally (and not generically) and it is Pareto efficient and obviously incentive compatible. We also prove the converse result, i.e., given a symmetric information REE, we can construct a sequence of approximate asymmetric REE allocations that converges to the symmetric information REE. In view of the above results, the symmetric information REE provides a rationalization for the asymmetric one.

Suggested Citation

  • Marialaura Pesce & Niccolò Urbinati & Nicholas C. Yannelis, 2025. "On the limit points of an infinitely repeated rational expectations equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 80(2), pages 465-492, September.
    • Handle: RePEc:spr:joecth:v:80:y:2025:i:2:d:10.1007_s00199-024-01576-7
    DOI: 10.1007/s00199-024-01576-7
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    References listed on IDEAS

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    1. Cheng-Zhong Qin & Xintong Yang, 2020. "On the equivalence of rational expectations equilibrium with perfect Bayesian equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 69(4), pages 1127-1146, June.
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    9. Allen, Beth E, 1981. "Generic Existence of Completely Revealing Equilibria for Economies with Uncertainty when Prices Convey Information," Econometrica, Econometric Society, vol. 49(5), pages 1173-1199, September.
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    11. Yeneng Sun & Lei Wu & Nicholas C. Yannelis, 2013. "Incentive compatibility of rational expectations equilibrium in large economies: a counterexample," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 1(1), pages 3-10, May.
    12. Anuj Bhowmik & Jiling Cao, 2016. "Rational expectations equilibria: existence and representation," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(2), pages 367-386, October.
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    Keywords

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    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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