Incentive compatible self-fulfilling mechanisms and rational expectations

Xuesong Huang

Games and Economic Behavior, 2021, vol. 126, issue C, 100-135

Abstract: This paper extends the exact equivalence result between the allocations realized by self-fulfilling mechanisms and rational expectations equilibrium allocations in Forges and Minelli (1997) to a large finite-agent replica economy where different replicas of the same agent are allowed to receive different private information. The first result states that the allocation realized by any incentive compatible self-fulfilling mechanism is an approximate rational expectations equilibrium allocation. Conversely, the second result states that, given any rational expectations equilibrium satisfying a “uniform continuity” condition on the equilibrium price, one can construct an approximate incentive compatible self-fulfilling mechanism whose equilibrium allocation coincides with the rational expectations equilibrium allocation for all non-monetary commodities.

Keywords: Rational expectations equilibrium; Strategic market game; Incentive compatible self-fulfilling mechanism; Large economy (search for similar items in EconPapers)
JEL-codes: D04 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:126:y:2021:i:c:p:100-135

DOI: 10.1016/j.geb.2020.12.003

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