Abstract
We introduce differential information in the asset market model studied by Cheng J Math Econ 20(1):137–152,1991, Dana and Le Van J Math Econ 25(3):263–280,1996 and Le Van and Truong Xuan J Math Econ 36(3): 241–254, 2001. We prove an equilibrium existence result assuming that the economy’s information structure satisfies the conditional independence property. If private information is not publicly verifiable, agents have incentives to misreport their types and therefore contracts may not be executed in the second period. We also show that under the conditional independence property equilibrium contracts are always executable.
Similar content being viewed by others
References
Aliprantis C.D. (1997) Separable utility functions. J Math Econ 28(4): 415–444
Aliprantis C.D., Border K.C. (1999) Infinite dimensional analysis, 2nd edn. Berlin Heidelberg New York, Springer
Allouch N., Florenzano M. (2004) Edgeworth and Walras equilibria of an arbitrage-free exchange economy. Econ Theory 23(2): 353–370
Allouch N., Le Van C., Page Jr. F.H. (2002) The geometry of arbitrage and the existence of competitive equilibrium. J Math Econ 38(4): 373–391
Black F., Scholes M. (1973) The pricing of options and corporate liabilities. J Polit Econ 81(3): 637–654
Brezis H. (1993) Analyse fonctionnelle. Paris, Masson
Cheng H.H.C. (1991) Asset market equilibrium in infinite dimensional complete markets. J Math Econ 20(1): 137–152
Chichilnisky G. (1995) Limited arbitrage is necessary and sufficient for the existence of a competitive equilibrium with or without short sales. Econ Theory 5(5): 79–107
Daher W., Martins-da-Rocha V.F. Vailakis Y.: Asset market equilibrium with short-selling and differential information. Cahiers de la MSE Série Bleue # 2005.98 (2005)
Dana R.-A., Le Van C. (1996) Asset equilibria in L p spaces with complete markets: a duality approach. J Math Econ 25(3): 263–280
Dana R.-A., Le Van C. (2000) Arbitrage, duality and asset equilibria. J Math Econ 34(3): 397–413
Dana R.-A., Le Van C., Magnien F. (1997) General equilibrium in asset markets with or without short-selling. J Math Anal Appl 206(2): 567–588
Dana R.-A., Le Van C., Magnien F. (1999) On the different notions of arbitrage and existence of equilibrium. J Econ Theory 87(1): 169–193
Debreu G. (1959) Theory of Value. New-York, John Wiley and Sons
Duffie D., Huang C.-F. (1985) Implementing Arrow-Debreu equilibria by continuous trading of few long-lived securities. Econometrica 53(6): 1337–1356
Einy E., Moreno D., Shitovitz B. (2001) Competitive and core allocations in large economies with differential information. Econ Theory 18(2): 321–332
Florenzano M. (2003) General equilibrium analysis: existence and optimality properties of equilibria. Dordrecht, Kluwer
Hahn G., Yannelis N.C. (1997) Efficiency and incentive compatibility in differential information economies. Econ Theory 10(3): 383–411
Hammond P.J. (1983) Overlapping expectations and hart’s condition for equilibrium in a securities model. J Econ Theory 31(1): 170–175
Hart O.D. (1974) On the existence of equilibrium in a securities model. J Econ Theory 9(3): 293–311
Herves-Beloso C., Moreno-Garcia E., Yannelis N.C. (2005a) Characterization and incentive compatibility of walrasian expectations equilibrium in infinite dimensional commodity spaces. Econ Theory 26(2): 361–381
Herves-Beloso C., Moreno-Garcia E., Yannelis N.C. (2005b) An equivalence theorem for a differential information economy. J Math Econ 41(7): 844–856
Koutsougeras L., Yannelis N.C. (1993) Incentive compatibility and information superiority of the core of an economy with differential information. Econ Theory 3(2): 195–216
Krasa S., Yannelis N.C. (1994) The value allocation of an economy with differential information. Econometrica 62(4): 881–900
Krasnoselskii M.A. (1964) Topological methods in the theory of nonlinear integral equations. Oxford, Pergamon Press
Kreps D.M. (1981) Arbitrage and equilibrium in economies with infinitely many commodities. J Math Econ 8(1): 15–35
Le Van C., Truong Xuan D.H. (2001) Asset market equilibrium in L p spaces with separable utilities. J Math Econ 36(3): 241–254
McLean R., Postlewaite A. (2002) Information size and incentive compatibility. Econometrica 70(6): 2421–2453
Page Jr. F.H. (1987) On equilibrium in Hart’s securities exchange model. J Econ Theory 41(2): 392–404
Page Jr. F.H., Wooders M.H., Monteiro P.K. (2000) Inconsequential arbitrage. J Math Econ 34(4): 439–469
Radner R. (1968) Competitive equilibrium under uncertainty. Econometrica 36(1): 31–58
Radner R. (1972) Existence of equilibrium of plans, prices, and price expectations in a sequence of markets. Econometrica 40(2): 289–303
Rockafellar R.T. (1970) Convex analysis, Princeton Mathematical Series, No 28. Princeton, Princeton University Press
Sun Y., Yannelis N. Perfect competition in asymmetric information economies: compatibility of efficiency and incentives. J Econ Theory (forthcoming) (2006)
Werner J. (1987) Arbitrage and the existence of competitive equilibrium. Econometrica 55(6): 1403–1418
Yannelis N.C. (1991) The core of an economy with differential information. Econ Theory 1(2): 183–198
Author information
Authors and Affiliations
Corresponding author
Additional information
We are grateful to Françoise Forges, Nicholas Yannelis, an anonymous referee and especially an Associate Editor for valuable comments and suggestions. Thanks are also due to Rose-Anne Dana, Cuong Le Van, M. Ali Khan, Paulo K. Monteiro and Frank Riedel. An earlier version of the paper has been presented in the first General Equilibrium workshop in Rio, as well as in the MED seminar in Paris-1. We thank the participants for their valuable comments. Part of this work was undertaken while the authors visited Faculdade de Economia da Universidade Nova de Lisboa in April 2006. Yiannis Vailakis acknowledges the financial support of a Marie Curie fellowship, (FP6 Intra-European Marie Curie fellowships 2004-2006).
Rights and permissions
About this article
Cite this article
Daher, W., Martins-da-Rocha, V.F. & Vailakis, Y. Asset market equilibrium with short-selling and differential information. Economic Theory 32, 425–446 (2007). https://doi.org/10.1007/s00199-006-0131-5
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s00199-006-0131-5