A Large-Market Rational Expectations Equilibrium Model
University of Navarra - IESE Business School; Universitat Pompeu Fabra (UPF); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
June 14, 2011
CESifo Working Paper Series No. 3485
This paper presents a market with asymmetric information where a privately revealing equilibrium obtains in a competitive framework and where incentives to acquire information are preserved. The equilibrium is efficient, and the paradoxes associated with fully revealing rational expectations equilibria are precluded without resorting to noise traders. The model admits a reinterpretation in which behavioral traders coexist with rational traders, and it allows us to characterize the amount of induced mispricing.
Number of Pages in PDF File: 37
Keywords: adverse selection, information acquisition, double auction, multi-unit auctions, rate of convergence, behavioural traders, complementarities
JEL Classification: D820, D840, G140working papers series
Date posted: June 15, 2011
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