European Business Schools Librarian's Group

Les Cahiers de Recherche,
HEC Paris

No 684: Incomplete Markets, Allocative Efficiency and the Information Revealed by Prices

CITANNA Alessandro and VILLANACCI Antonio

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

JEL-codes: D52; D60; D82; E52

36 pages, October 11, 1999

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