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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," FMG Discussion Papers dp658, Financial Markets Group.
    • Handle: RePEc:fmg:fmgdps:dp658
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    Cited by:

    1. Beker, Pablo F. & Cuevas, Conrado, 2018. "The social value of information in economies with mandatory savings," The Warwick Economics Research Paper Series (TWERPS) 1152, University of Warwick, Department of Economics.
    2. Rahi, Rohit, 2021. "Information acquisition with heterogeneous valuations," Journal of Economic Theory, Elsevier, vol. 191(C).
    3. Rahi, Rohit & Zigrand, Jean-Pierre, 2018. "Information acquisition, price informativeness, and welfare," Journal of Economic Theory, Elsevier, vol. 177(C), pages 558-593.
    4. Rahi, Rohit, 2019. "Information acquisition with heterogeneous valuations," LSE Research Online Documents on Economics 118929, London School of Economics and Political Science, LSE Library.
    5. 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.
    6. Piotr Denderski & Christian Stoltenberg, 2015. "On Positive Value of Information in Risk Sharing," Tinbergen Institute Discussion Papers 15-074/VI, Tinbergen Institute.
    7. Cristian Ionescu, 2012. "Incomplete Markets and Financial Instability. The Role of Information," Annals of the University of Petrosani, Economics, University of Petrosani, Romania, vol. 12(1), pages 141-150.
    8. Rahi, Rohit & Zigrand, Jean-Pierre, 2018. "Information acquisition, price informativeness and welfare," LSE Research Online Documents on Economics 118935, London School of Economics and Political Science, LSE Library.

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    More about this item

    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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