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Allocative and Productive Efficiency in REE with Asymetric Information

AuthorsVives, Xavier
KeywordsInformational Externalities
Supply Function Equilibria
Mechanism design
Market Efficiency
Issue Date11-Nov-2000
SeriesUFAE and IAE Working Papers
AbstractWe characterize the divergence between 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 to 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 the market solution does not show llocative inefficiency. With multidimensional uncertainty we find that the REE price does not have in general the incentive efficient information mix: It pays to sacrifice allocative efficiency at the REE to improve productive efficiency.
Appears in Collections:(IAE) Informes y documentos de trabajo
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