Citation

Discussion Paper Details

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Title: Allocative and Productive Efficiency in REE with Asymmetric Information

Author(s): Simon Messner and Xavier Vives

Publication Date: January 2001

Keyword(s): Asymmetric Information, Informational Externalities, Market Efficiency, Mechanism Design, Rational Expectations and Supply Function Equilibria

Programme Area(s): Industrial Organization

Abstract: We characterize the divergence between in informational and economic efficiency in a rational expectations competitive market with asymmetric information about the costs of production. We find that prices may contain too much or too little information with respect o incentive efficient allocations depending on whether the main role of the price is, respectively, the traditional as index of scarcity or informational. Only when REE degenerate to Cournot equilibria, does the market solution not show allocative inefficiency. With multidimensional uncertainty we find that the REE price does not, in general, have the incentive efficient information mix: it pays to sacrifice allocative efficiency at the REE to improve productive efficiency.

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Bibliographic Reference

Messner, S and Vives, X. 2001. 'Allocative and Productive Efficiency in REE with Asymmetric Information'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2678