Information, Efficiency and Equilibrium

Format:Print
| Language:English

Abstract

When economic agents receive information over time concerning future events it is likely that prices for commodities whose value is influenced by these events will fluctuate in response to changes in the state of knowledge. If such events occur periodically, participants in the market will notice that the prices could be used, to some extent, as a proxy for the relevant information. Learning of this type will take place by those agents who do not receive the information directly. Therefore, under stationary conditions, equilibria in this market will be characterized by the endogenous formation of expectations, dependent on the price system. The purpose of this paper is to define and characterize this type of equilibrium under various conditions and to study its efficiency properties. We will allow the choice of whether to receive information directly to be endogenous. The model will hopefully have useful implications for the theories of speculation and temporary equilibrium.