Allocative and Productive Efficiency in REE with Asymmetric Information

Xavier Vives and Simon Messner

No 2678, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We characterize the divergence between in informational and economic efficiency in a rational expectations competitive market with asymmetric information about the costs of production. We find that prices may contain too much or too little information with respect o incentive efficient allocations depending on whether the main role of the price is, respectively, the traditional as index of scarcity or informational. Only when REE degenerate to Cournot equilibria, does the market solution not show allocative inefficiency. With multidimensional uncertainty we find that the REE price does not, in general, have the incentive efficient information mix: it pays to sacrifice allocative efficiency at the REE to improve productive efficiency.

Keywords: Informational externalities; Supply function equilibria; Rational expectations; Asymmetric information; Mechanism design; Market efficiency (search for similar items in EconPapers)
JEL-codes: D82 L13 L40 (search for similar items in EconPapers)
Date: 2001-01
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Citations: View citations in EconPapers (1)

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Working Paper: Allocative and Productive Efficiency in REE with Asymetric Information (2000)
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