 Efficiency in trading markets with multi-dimensional signalsJournal of Economic Theory, 2021, vol. 191, issue C Abstract: There is a continuum of agents, each of whom trades a divisible asset via demand function competition. Individual valuations are determined by payoff shocks that are correlated across agents. Agents observe multi-dimensional signals about the payoff shocks; it is only assumed that the signals are normally and symmetrically distributed. We give three results about this economy. First, an equilibrium exists. Second, the equilibrium is constrained inefficient; a higher total surplus could be attained if agents submitted different demands. Third, a constrained-efficient outcome can be implemented by setting an appropriate capital-gains tax. The second result identifies a new type of inefficiency that only arises when agents observe multi-dimensional signals; the third result identifies the taxation policy that allows correcting this inefficiency. Keywords: Information aggregation; Multi-dimensional signals; Demand function competition; Supply function competition; Rational expectations equilibrium (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:191:y:2021:i:c:s0022053120301496 DOI: 10.1016/j.jet.2020.105156 Access Statistics for this article Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell More articles in Journal of Economic Theory from Elsevier |
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