Rahi, Rohit: Efficiency Properties of Rational Expectations Equilibria with Asymmetric Information
World Conference Econometric Society, 2000, Seattle

Rohit Rahi, London School of Economics
Efficiency Properties of Rational Expectations Equilibria with Asymmetric Information
Session: C-3-8  Saturday 12 August 2000  by Rahi, Rohit
We analyze the welfare properties of rational expectations equilibria (REE) in economies with asymmetrically informed agents and incomplete markets. We ask whether a planner can improve upon an equilibrium allocation, using an individually rational and incentive compatible mechanism, and subject to the same asset constraints as agents. For an REE that reveals any information at all, the planner can generically bring about an interim Pareto improvement even conditional on the information that is available to agents in equilibrium. He can do so by altering prices while keeping their informational content fixed. Furthermore, for any partially revealing equilibrium, the planner can generically effect an ex post Pareto improvement by providing more information to agents, while controlling for price effects.
Submitted paper full-text in .pdf


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