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Information, efficiency, and the core of an economy

  • Robert Wilson
Chapter
Part of the Studies in Economic Theory book series (ECON.THEORY, volume 19)

Summary

The meaning of exchange efficiency is examined in the context of an economy in which agents differ in their endowments of information. Definitions of efficiency, and of the core, are proposed which emphasize the role of communication. Opportunities for insurance are preserved by restricting communication, or in a market system by restricting insider trading, prior to the pooling of information for the purposes of production.

My subject is an economy in which different agents have different information. I propose a definition of exchange efficiency and I characterize the efficient allocations. I then examine an analogous definition of the core and I demonstrate that the core is not empty if the usual regularity conditions are satisfied. An example, however, illustrates that a market process may fail to yield an efficient allocation. In fact, in this example the market allocation is not even individually rational for the agents. Also, in this example the core is empty if there are opportunities for communication which disrupt arrangements for mutual insurance.

Keywords

Cooperative Game Market Process Prevailing State Feasible Allocation Differential Information 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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References

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    Rothschild, M., Stiglitz, J.: Equilibrium in competitive insurance markets: an essay an the economics of imperfect information. Quarterly Journal of Economics 90, (629–649 (1976)Google Scholar
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Copyright information

© Springer-Verlag Berlin Heidelberg 2005

Authors and Affiliations

  • Robert Wilson
    • 1
  1. 1.Stanford UniversityUSA

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