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Efficiency Properties of Rational Expectations Equilibria with Asymmetric Information

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  • Rohit Rahi

    (London School of Economics)

Abstract

We analyze the welfare properties of rational expectations equilibria (REE) in economies with asymmetrically informed agents and incomplete markets. We ask whether a planner can improve upon an equilibrium allocation, using an individually rational and incentive compatible mechanism, and subject to the same asset constraints as agents. For an REE that reveals any information at all, the planner can generically bring about an interim Pareto improvement even conditional on the information that is available to agents in equilibrium. He can do so by altering prices while keeping their informational content fixed. Furthermore, for any partially revealing equilibrium, the planner can generically effect an ex post Pareto improvement by providing more information to agents, while controlling for price effects.

Suggested Citation

  • Rohit Rahi, 2000. "Efficiency Properties of Rational Expectations Equilibria with Asymmetric Information," Econometric Society World Congress 2000 Contributed Papers 1468, Econometric Society.
    • Handle: RePEc:ecm:wc2000:1468
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    References listed on IDEAS

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    1. Alessandro Citanna & Antonio Villanacci, 1999. "Incomplete Markets, Allocative Efficiency and the Information Revealed by Prices," Working Papers hal-00599916, HAL.
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    Cited by:

    1. Piero Gottardi & Rohit Rahi, 2014. "Value Of Information In Competitive Economies With Incomplete Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(1), pages 57-81, February.
    2. Juan Hatchondo, 2004. "The value of information with heterogeneous agents and partially revealing prices," Econometric Society 2004 North American Summer Meetings 175, Econometric Society.

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    More about this item

    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

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