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Value of Information in Competitive Economies with Incomplete Markets

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  • Piero Gottardi
  • Rohit Rahi

Abstract

We study the value of information in a competitive economy in which agents trade in asset markets to reallocate risk. We characterize the kinds of information that allow a welfare improvement when portfolios can be freely reallocated. We then compare competitive equilibria before and after a change in information. We show that generically, if markets are sufficiently incomplete, the welfare effects are completely arbitrary: there typically exist changes in information that make all agents better off, or all agents worse off.

Suggested Citation

  • Piero Gottardi & Rohit Rahi, 2010. "Value of Information in Competitive Economies with Incomplete Markets," Economics Working Papers ECO2010/34, European University Institute.
  • Handle: RePEc:eui:euiwps:eco2010/34
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    References listed on IDEAS

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    1. Rohit Rahi, 2000. "Efficiency Properties of Rational Expectations Equilibria with Asymmetric Information," Econometric Society World Congress 2000 Contributed Papers 1468, Econometric Society.
    2. Lawrence Blume & Tarek Coury & David Easley, 2006. "Information, trade and incomplete markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 29(2), pages 379-394, October.
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    4. Hakansson, Nils H & Kunkel, J Gregory & Ohlson, James A, 1982. " Sufficient and Necessary Conditions for Information to Have Social Value in Pure Exchange," Journal of Finance, American Finance Association, vol. 37(5), pages 1169-1181, December.
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    6. Citanna, Alessandro & Villanacci, Antonio, 2000. "Incomplete Markets, Allocative Efficiency, and the Information Revealed by Prices," Journal of Economic Theory, Elsevier, vol. 90(2), pages 222-253, February.
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    13. Edward E. Schlee, 2001. "The Value of Information in Efficient Risk-Sharing Arrangements," American Economic Review, American Economic Association, vol. 91(3), pages 509-524, June.
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    Cited by:

    1. Galanis, Spyros, 2016. "The value of information in risk-sharing environments with unawareness," Games and Economic Behavior, Elsevier, vol. 97(C), pages 1-18.
    2. Michael Zierhut, 2016. "Partially revealing rational expectations equilibrium with real assets and binding constraints," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(3), pages 495-516, August.
    3. Piero Gottardi & Rohit Rahi, 2013. "Risk sharing and retrading in incomplete markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 54(2), pages 287-304, October.

    More about this item

    Keywords

    Equilibrium; Incomplete Markets; Value of Information;

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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