Existence, incentive compatibility and efficiency of the rational expectations equilibrium

Yeneng Sun, Lei Wu and Nicholas C. Yannelis

Games and Economic Behavior, 2012, vol. 76, issue 1, 329-339

Abstract: The rational expectations equilibrium (REE), as introduced in Radner (1979) in a general equilibrium setting à la Arrow–Debreu–McKenzie, often fails to have desirable properties such as universal existence, incentive compatibility and efficiency. We resolve those problems by providing a new model which makes the REE a desirable solution concept. In particular, we consider an asymmetric information economy with a continuum of agents whose private signals are independent conditioned on the macro states of nature. For such an economy, agents are allowed to augment their private information by the available public signals. We prove the existence, incentive compatibility and efficiency for this new REE concept.

Keywords: Asymmetric information; Rational expectations equilibrium; Efficiency; Incentive compatibility; Conditional independence; Exact law of large numbers (search for similar items in EconPapers)
JEL-codes: C70 D50 D82 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:76:y:2012:i:1:p:329-339

DOI: 10.1016/j.geb.2012.05.006

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