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Incomplete Markets, Allocative Efficiency and the Information Revealed by Prices

Author

Listed:
  • Alessandro Citanna

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

  • Antonio Villanacci

    (UniFI - Università degli Studi di Firenze = University of Florence = Université de Florence)

Abstract

We compare rational expectations equilibria with different degrees of information revelation through prices. These equilibria arise in a two-period exchange economy with finitely many states and signals, multiple commodities and incomplete financial markets for nominal assets. We show that there are always equilibria where information is redundant in the sense of being of no value to the uninformed traders. We give conditions under which for a generic set of economies, parametrized by endowments and utilities, there exist open sets of equilibria for which allocative and informational efficiency are independent, with implications for monetary policy.

Suggested Citation

  • Alessandro Citanna & Antonio Villanacci, 1999. "Incomplete Markets, Allocative Efficiency and the Information Revealed by Prices," Working Papers hal-00599916, HAL.
    • Handle: RePEc:hal:wpaper:hal-00599916
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    Cited by:

    1. Rohit Rahi, 2000. "Efficiency Properties of Rational Expectations Equilibria with Asymmetric Information," Econometric Society World Congress 2000 Contributed Papers 1468, Econometric Society.

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