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General equilibrium with private state verification

  • João Correia-da-Silva


    (CEMPRE and Faculdade de Economia, Universidade do Porto, Portugal)

  • Carlos Hervés-Beloso


    (RGEA and Facultad de Económicas, Universidad de Vigo, Spain)

We study general equilibrium with private and incomplete state verification. Trade is agreed ex ante, that is, before private information is received. It is useful to define a list of bundles as a derivative good that gives an agent the right to receive one of the bundles in the list. Enforceable trade agreements can be described by Pi-measurable plans of lists of bundles, instead of Pi-measurable plans of bundles as in Radner (1968). In equilibrium, the price of a list coincides with the price of the cheapest bundle in the list, and it is always the cheapest bundle of the list that is delivered. This property leads to a system of linear inequalities which are deliverability constraints on the choice set. We investigate existence of equilibrium in the case in which preferences are Pi-measurable. If there is a perfectly informed trader in the economy, existence of equilibrium is guaranteed.

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Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 269.

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Length: 57 pages
Date of creation: Mar 2008
Date of revision:
Handle: RePEc:por:fepwps:269
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  1. McKenzie, Lionel W, 1981. "The Classical Theorem on Existence of Competitive Equilibrium," Econometrica, Econometric Society, vol. 49(4), pages 819-41, June.
  2. Edward Simpson Prescott & Robert M. Townsend, 2006. "Firms as Clubs in Walrasian Markets with Private Information," Journal of Political Economy, University of Chicago Press, vol. 114(4), pages 644-671, August.
  3. MINELLI, Enrico & POLEMARCHAKIS, Heracles, 1999. "Nash-Walras equilibria of a large economy," CORE Discussion Papers 1999043, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Bisin, Alberto & Gottardi, Piero, 1999. "Competitive Equilibria with Asymmetric Information," Journal of Economic Theory, Elsevier, vol. 87(1), pages 1-48, July.
  5. Francoise Forges & Enrico Minelli & Rajiv Vohra, 2000. "Incentives and the Core of an Exchange Economy: A Survey," Working Papers 2000-22, Brown University, Department of Economics.
  6. Belen Jerez, 2005. "Incentive Compatibility and Pricing under Moral Hazard," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 28-47, January.
  7. Edward C Prescott & Robert M Townsend, 2010. "Pareto Optima and Competitive Equilibria With Adverse Selection and Moral Hazard," Levine's Working Paper Archive 2069, David K. Levine.
  8. P. Dubey & J. Geanakoplos & M . Shubik, 2001. "Default and Punishment in General Equilibrium," Department of Economics Working Papers 01-07, Stony Brook University, Department of Economics.
  9. FORGES, Françoise & HEIFETZ , Aviad & MINELLI, Enrico, . "Incentive compatible core and competitive equilibria in differential information economies," CORE Discussion Papers RP 1555, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Radner, Roy, 1979. "Rational Expectations Equilibrium: Generic Existence and the Information Revealed by Prices," Econometrica, Econometric Society, vol. 47(3), pages 655-78, May.
  11. Yannelis, Nicholas C, 1991. "The Core of an Economy with Differential Information," Economic Theory, Springer, vol. 1(2), pages 183-97, April.
  12. 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 1173-99, September.
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