Strongly rational expectations equilibria with endogenous acquisition of information
This paper analyzes conditions for existence of a strongly rational expectations equilibrium (SREE) in models with private information, where the amount of private information is endogenously determined. It is shown that the conditions for existence of a SREE known from models with exogenously given private information do not change as long as it is impossible to use the information transmitted through market prices. In contrast, these conditions are too weak, when there is such learning from prices. It turns out that the properties of the function which describes the costs that are associated with the individual acquisition of information are important in this respect. In case of constant marginal costs, prices must be half as informative than private signals in order for a SREE to exist. An interpretation of this result that falls back on the famous Grossman-Stiglitz-Paradox is also given.
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References listed on IDEAS
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- Gabriel Desgranges & Pierre-Yves Geoffard & Roger Guesnerie, 2003. "Do Prices Transmit Rationally Expected Information?," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 124-153, 03.
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- Guesnerie, R., 1999. "Anchoring Economic Predictions in Common Knowledge," DELTA Working Papers 1999-06, DELTA (Ecole normale supérieure).
- Maik Heinemann, 2003. "Are Rational Expectations Equilibria with Private Information Eductively Stable?," Computing in Economics and Finance 2003 267, Society for Computational Economics.
- Maik Heinemann, 2002. "Existence of Strongly Rational Expectations Equilibria on Asset Markets with Asymmetric Information," Computing in Economics and Finance 2002 57, Society for Computational Economics. Full references (including those not matched with items on IDEAS)