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| Author: | DeMarzo, P. Skiadas, C. |
| Title: | Aggregation, determinacy, and informational efficiency for a class of economies with asymmetric information |
| Journal: | Journal of Economic Theory
1998 : MAY, VOL. 80:1, p. 123-152 |
| Index terms: | MODELS CAPITAL ASSETS INFORMATION |
| Language: | eng |
| Abstract: | In the study, a class of economies with asymmetric information are identified and analyzed. These economies are called quasi-complete. For quasi-complete economies equilibrium trades are determined, and shown that the set of fully informative equilibria is a singleton. Necessary and sufficient conditions for the existence of partially informative equilibria are given. Besides unifying some familiar settings, such as those of Grossman (1976) and Milgrom and Stokey (1982), the following new results are proved: (a) The same restrictions that deliver Gorman aggregation under symmetric information are sufficient for Gorman aggregation under asymmetric information, even under partially informative prices; (b) the traditional assumptions of quadratic utilities and endowment spanning that result in the CAPM under symmetric information deliver a conditional CAPM under asymmetric information with prices that need not be fully informative; (c) the linear equilibrium in Grossman's (1976) model is the only equilibrium (linear or non-linear), while minor changes in the normality assumptions result in indeterminacy and partially informative equilibria; and (d) if there is no aggregate endowment risk, asymmetrically informed agents with common priors sell the risky part of their endowment in every equilibrium. |
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