Existence of financial equilibrium with differential information: the no-arbitrage characterization

Lionel De Boisdeffre ()
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Lionel De Boisdeffre: Centre d'Economie de la Sorbonne & CATT - Université de Pau

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: In the classical approach to asymmetric information, agents are all endowed with a price model à la Radner (Econometrica 47: 655-678, 1979). That is, they are assumed to know exactly how equilibrium prices are determined and would only infer information from markets with reference to that price model. Radner (1979) showed that, under asymmetric information, equilibrium only existed generically in this setting. We now drop that so-called "rational expectation" assumption and study the existence of financial equilibrium when assets are numeraire. We show the existence of equilibrium is, then, characterized by the no-arbitrage condition on financial markets, as in De Boisdeffre (Econ Theory 31: 255-269, 2007), where assets are nominal. This result extends Geanakoplos-Polemarchakis' (Essays in Honor of K.J. Arrow, Starr & Starrett ed., Cambridge UP Vol. 3, 65-96, 1986) to the case of asymmetric information. Contrasting with Radner's, it shows that asymmetric and asymmetric information economies can be treated as two applications of a same model, where they share similar properties

Keywords: general equilibrium; asymmetric information; arbitrage; existence (search for similar items in EconPapers)
JEL-codes: D52 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2016-03
New Economics Papers: this item is included in nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:16025

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