A Large-Market Rational Expectations Equilibrium Model
CESifo, Munich, 2011
CESifo Working Paper No. 3485
This paper presents a market with asymmetric information where a privately revealing equilibrium obtains in a competitive framework and where incentives to acquire information are preserved. The equilibrium is efficient, and the paradoxes associated with fully revealing rational expectations equilibria are precluded without resorting to noise traders. The model admits a reinterpretation in which behavioral traders coexist with rational traders, and it allows us to characterize the amount of induced mispricing.
Industrial Organisation
Behavioural Economics