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Do Prices Transmit Rationally Expected Information?

Author

Listed:
  • Gabriel Desgranges

    (University of Cergy-Pontoise and University of Saint-Etienne,)

  • Pierre-Yves Geoffard

    (DELTA (PARIS-Jourdan) and University of Lausanne,)

  • Roger Guesnerie

    (DELTA (PARIS-Jordan),)

Abstract

A simple model with asymmetric information, in which inventory holders or traders submit demand curves to an auctioneer, has a unique partially revealing equilibrium. We wonder whether the agents can plausibly coordinate on this equilibrium through "eductive" reasoning relying on common knowledge. The analysis stresses the role of two effects, sensitivity and amplification, whose product should be small enough. The property is obtained whenever the equilibrium excess demand is steep enough, i.e., when the search for information does not distort demand too much. Neither the influence of the number of informed agents nor that of noise trading are monotonic. Real-time learning has strikingly different features. (JEL: D82, D84) Copyright (c) 2003 The European Economic Association.

Suggested Citation

  • Gabriel Desgranges & Pierre-Yves Geoffard & Roger Guesnerie, 2003. "Do Prices Transmit Rationally Expected Information?," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 124-153, March.
  • Handle: RePEc:tpr:jeurec:v:1:y:2003:i:1:p:124-153
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    References listed on IDEAS

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    1. Persson, Torsten & Tabellini, Guido, 1999. "Political economics and macroeconomic policy," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 22, pages 1397-1482 Elsevier.
    2. Ulrich Erlenmaier & Hans Gersbach, 2001. "Flexible Majority Rules," CESifo Working Paper Series 464, CESifo Group Munich.
    3. Persson, Torsten & Tabellini, Guido, 2002. "Political economics and public finance," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 24, pages 1549-1659 Elsevier.
    4. Hans Gersbach, 2002. "Democratic Mechanisms: Double Majority Rules and Flexible Agenda Costs," CESifo Working Paper Series 749, CESifo Group Munich.
    5. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
    6. Casella, Alessandra, 2005. "Storable votes," Games and Economic Behavior, Elsevier, vol. 51(2), pages 391-419, May.
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    Citations

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    Cited by:

    1. Roger Guesnerie, 2009. "Macroeconomic and Monetary Policies from the Eductive Viewpoint," Central Banking, Analysis, and Economic Policies Book Series,in: Klaus Schmidt-Hebbel & Carl E. Walsh & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy under Uncertainty and Learning, edition 1, volume 13, chapter 6, pages 171-202 Central Bank of Chile.
    2. Gabriel Desgranges & Maik Heinemann, 2004. "Strongly rational expectations equilibria with endogenous acquisition of information," Computing in Economics and Finance 2004 35, Society for Computational Economics.
    3. Gabriel DESGRANGES & Stéphane GAUTHIER, 2008. "Stabilizing through Poor Information," THEMA Working Papers 2008-32, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    4. Gabriel Desgranges & Maik Heinemann, 2008. "Strongly Rational Expectations Equilibria,Endogenous Acquisition of Information and the Grossman–Stiglitz Paradox," THEMA Working Papers 2008-25, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.

    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

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