Rational expectations in urban economics
Marcus Berliant () and
MPRA Paper from University Library of Munich, Germany
Canonical analysis of the classical general equilibrium model demonstrates the existence of an open and dense subset of standard economies that possess fully-revealing rational expectations equilibria. This paper shows that the analogous result is not true in urban economies. An open subset of economies where none of the rational expectations equilibria fully reveal private information is found. There are two important pieces. First, there can be information about a location known by a consumer who does not live in that location in equilibrium, and thus the equilibrium rent does not reflect this information. Second, if a consumer’s utility depends only on information about their (endogenous) location of residence, perturbations of utility naturally do not incorporate information about other locations conditional on their location of residence. Existence of a rational expectations equilibrium is proved. Space can prevent housing prices from transmitting information from informed to uninformed households, resulting in an inefficient outcome.
Keywords: Urban Economics; General Equilibrium; Private Information; Rational Expectations (search for similar items in EconPapers)
JEL-codes: R13 D82 D51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-geo, nep-hpe and nep-ure
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Journal Article: Rational expectations in urban economics (2013)
Working Paper: Rational expectations in urban economics (2012)
Working Paper: Rational Expectations in Urban Economics (2012)
Working Paper: Rational expectations in urban economics (2011)
Working Paper: Rational Expectations in Urban Economics (2010)
Working Paper: Rational expectations in urban economics (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:17327
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