Decisions and Optimality in Competitive Stock Ownership Economies

Gerry L Suchanek

International Economic Review, 1995, vol. 36, issue 1, 53-74

Abstract: Reexamination of the decision theoretic structure of a Diamond-Dreze stock market economy reveals that general lack of optimal equilibrium allocations is an informational problem. Prices of firms' shares and observed production convey information sufficient for weak-form market efficiency but is inadequate for investors to select socially optimal portfolios that constitute strong-form market efficiency. Revising the optimality concept to accommodate information constraints yields a notion of information constrained Pareto optimality. This concept reflects general application of the principle of semi-strong-form market efficiency. The authors' approach subsumes the Bayesian approach. Copyright 1995 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1995
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