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Incomplete Markets, Allocative Efficiency and the Information Revealed by Prices

Author

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  • Alessandro, CITANNA
  • Antonio, VILLANACCI

Abstract

We compare rational expectations equilibria with different degrees of information revelation through prices. These equilibria arise in a two-period exchange economy with finitely many states and signals, multiple commodities and incomplete financial markets for nominal assets. We show that there are always equilibria where information is redundant in the sense of being of no value to the uninformed traders. We give conditions under which for a generic set of economies, parametrized by endowments and utilities, there exist open sets of equilibria for which allocative and informational efficiency are independent, with implications for monetary policy.

Suggested Citation

  • Alessandro, CITANNA & Antonio, VILLANACCI, 1999. "Incomplete Markets, Allocative Efficiency and the Information Revealed by Prices," HEC Research Papers Series 684, HEC Paris.
    • Handle: RePEc:ebg:heccah:0684
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    More about this item

    Keywords

    Incomplete market; efficiency; information;
    All these keywords.

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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