The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Information Aggregation and Prices

  • James Jordan
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_2811

Abstract

Economists commonly interpret market-clearing prices as the signals that competitive markets transmit to economic agents to facilitate the efficient allocation of resources. Informational decentralization theory formalizes this interpretation by characterizing the market mechanism as the unique decentralized mechanism that achieves efficient allocation with the minimal required communication. Rational expectations equilibrium theory formalizes a different aspect of the interpretation, showing that markets transmit to each trader all of the decision-relevant information in the market.

Keywords

Cobb–Douglas functions Efficient markets hypothesis First Fundamental Welfare Theorem Full communication equilibrium General equilibrium under uncertainty Hayek, F. Information aggregation and prices Informational decentralization Rational expectations equilibrium 
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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • James Jordan
    • 1
  1. 1.