Allocative and Productive Efficiency in REE with Asymetric Information

Xavier Vives

UFAE and IAE Working Papers from Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC)

Abstract: We characterize the divergence between 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 to 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 the market solution does not show llocative inefficiency. With multidimensional uncertainty we find that the REE price does not have in general 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)
Pages: 43
Date: 2000-11-11
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Related works:
Working Paper: Allocative and Productive Efficiency in REE with Asymmetric Information (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:aub:autbar:473.00

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