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Prices, Information and Learning

Author

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  • Andrei Shevchenko
  • Luis Araujo

Abstract

We consider an economy where trade is decentralized and agents have incomplete information with respect to the value of money. Agents' learning evolves from private experiences and we explore how the formation of prices interacts with learning. We show that multiple equilibria arise, and equilibria with price dispersion entail more learning than equilibria with one price. Price dispersion increases communication about private histories, which in turn increases the overall amount of information in the economy. We also compare welfare under price dispersion and one price. Our results show that, despite the existence of some meetings where no trade takes place, welfare under price dispersion may be higher than under one price

Suggested Citation

  • Andrei Shevchenko & Luis Araujo, 2004. "Prices, Information and Learning," 2004 Meeting Papers 118, Society for Economic Dynamics.
  • Handle: RePEc:red:sed004:118
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    References listed on IDEAS

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    Cited by:

    1. Luis Araujo & Braz Camargo, 2005. "Monetary Equilibrium with Decentralized Trade and Learning," UWO Department of Economics Working Papers 20051, University of Western Ontario, Department of Economics.

    More about this item

    Keywords

    Money; search; learning; price dispersion;

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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