Competitive equilibrium with asymmetric information: the arbitrage characterization

Lionel De Boisdeffre ()
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Lionel De Boisdeffre: INSEE (CREST) et CERMSEM

Cahiers de la Maison des Sciences Economiques from Université Panthéon-Sorbonne (Paris 1)

Abstract: In a general equilibrium model of incomplete nominal-asset markets and adverse selection, Cornet-De Boisdeffre [3] introduced refined concepts of "no-arbitrage" prices and equilibria, which extended to the asymmetric information setting the classical concepts of symmetric information. In subsequent papers [4, 5], we generalized standard existence results of the symmetric information literature, as demonstrated by Cass [2], for nominal assets, or Geanakoplos-Polemarchakis [8], for numeraire assets, and showed that a no-arbitrage condition characterized the existence of equilibrium, in both asset structures, whether agents had symmetric or asymmetric information. We now introduce the model with arbitrary types of assets and a weaker concept of "pseudo-equilibrium" consistent with asymmetric information, to which we extend a classical theorem of symmetric information models with real assets. Namely, we show that the existence of a pseudo-equilibrium is still guaranteed by a no-arbitrage condition, under the same standard conditions with symmetric or asymmetric information

Keywords: General equilibrium; asymmetric information; arbitrage; inference; existence of a pseudo-equilibrium (search for similar items in EconPapers)
JEL-codes: D52 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2005-12
New Economics Papers: this item is included in nep-fmk and nep-mic
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