Incomplete Markets, Allocative Efficiency, and the Information Revealed by Prices

Alessandro Citanna, Antonio Villanacci

Research output: Contribution to journalArticle

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. Journal of Economic Literature Classification Numbers: D52, D60, D82, E52.

Original languageEnglish (US)
Pages (from-to)222-253
Number of pages32
JournalJournal of Economic Theory
Volume90
Issue number2
DOIs
StatePublished - Feb 1 2000

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ASJC Scopus subject areas

  • Economics and Econometrics

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