Strongly rational expectations equilibria with endogenous acquisition of information

Gabriel Desgranges and Maik Heinemann ()
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Maik Heinemann: Institute of Economics, University of Lüneburg

No 9, Working Paper Series in Economics from University of Lüneburg, Institute of Economics

Abstract: This paper analyzes conditions for existence of a strongly rational expectations equilibrium (SREE) in models with private information, where the amount of private information is endogenously determined. It is shown that the conditions for existence of a SREE known from models with exogenously given private information do not change as long as it is impossible to use the information transmitted through market prices. In contrast, these conditions are too weak, when there is such learning from prices. It turns out that the properties of the function which describes the costs that are associated with the individual acquisition of information are important in this respect. In case of constant marginal costs, prices must be half as informative than private signals in order for a SREE to exist. An interpretation of this result that falls back on the famous Grossman– Stiglitz–Paradox is also given.

Keywords: Eductive Learning; Private Information; Rational Expectations; Strongly Rational Expectations Equilibrium (search for similar items in EconPapers)
JEL-codes: D82 D83 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2005-03-17
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Working Paper: Strongly rational expectations equilibria with endogenous acquisition of information (2004)
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