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Strongly rational expectations equilibria with endogenous acquisition of information

  • This paper analyzes conditions for existence of a strongly rational expectations equilibrium (SREE) in models with private information, where the amount of private information is endogenously determined. It is shown that the conditions for existence of a SREE known from models with exogenously given private information do not change as long as it is impossible to use the information transmitted through market prices. In contrast, these conditions are too weak, when there is such learning from prices. It turns out that the properties of the function which describes the costs that are associated with the individual acquisition of information are important in this respect. In case of constant marginal costs, prices must be half as informative than private signals in order for a SREE to exist. An interpretation of this result that falls back on the famous Grossman–Stiglitz–Paradox is also given.

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Author:Gabriel Desgranges, Maik Heinemann
Series (Serial Number):University of Lüneburg Working paper series in economics (9)
Document Type:ResearchPaper
Year of Completion:2005
Date of Publication (online):2005/07/07
Release Date:2005/07/07
Tag:Eductive Learning; Private Information; Rational Expectations; Strongly Rational Expectations Equilibrium
GND Keyword:Erwartung; Rationale Erwartung
Institutes:Universität / Frühere Fachbereiche
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft