Incomplete Markets, Allocative Efficiency and the Information Revealed by Prices

Citanna Alessandro and Villanacci Antonio

No 684, HEC Research Papers Series from HEC Paris

Abstract: We compare rational expectations equilibria with different degrees of information revelation through prices. These equilibria arise in a two-period exchange economy with finitely many states and signals, multiple commodities and incomplete financial markets for nominal assets. We show that there are always equilibria where information is redundant in the sense of being of no value to the uninformed traders. We give conditions under which for a generic set of economies, parametrized by endowments and utilities, there exist open sets of equilibria for which allocative and informational efficiency are independent, with implications for monetary policy.

Keywords: Incomplete market; efficiency; information (search for similar items in EconPapers)
JEL-codes: D52 D60 D82 E52 (search for similar items in EconPapers)
Pages: 36 pages
Date: 1999-10-11
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:0684

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