Summary.
We point out several conceptual difficulties of the rational expectations equilibrium concept. In particular we show that such an equilibrium need not be incentive compatible and need not be implementable as a perfect Bayesian equilibrium . A comparison of rational expectations equilibria with the private core is also provided. We conclude that the private core is a more appropriate concept to capture the idea of contracts under asymmetric information.
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Received: 15 December 2003, Revised: 18 November 2004,
JEL Classification Numbers:
C71, C72, D5, D82.
Correspondence to: Nicholas C. Yannelis
We wish to thank Dr A. Hadjiprocopis for his invaluable help with the implementation of Latex in a Unix environment.
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Glycopantis, D., Muir, A. & Yannelis, N.C. Non-implementation of rational expectations as a perfect Bayesian equilibrium. Economic Theory 26, 765–791 (2005). https://doi.org/10.1007/s00199-004-0585-2
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DOI: https://doi.org/10.1007/s00199-004-0585-2