[go: up one dir, main page]
More Web Proxy on the site http://driver.im/
IDEAS home Printed from https://ideas.repec.org/p/fip/fedrwp/05-06.html
   My bibliography  Save this paper

The value of information with heterogeneous agents and partially revealing prices

Author

Listed:
  • Juan Carlos Hatchondo
Abstract
This paper studies how the arrival of information affects welfare in a general equilibrium exchange economy with incomplete and differential information. It considers a setup in which agents differ in their attitudes toward risk. This introduces gains from trade. In equilibrium, the information sets differ across agents, i.e., they hold heterogeneous beliefs. For certain structures of primitives, the latter introduces an adverse effect on welfare. In this case, the arrival of information has opposite effects: on the one hand it weakens the adverse effect on trade, and on the other hand it strengthens the Hirshleifer effect. The first effect fosters and the second one discourages risk-sharing trades. When the first effect dominates, welfare increases upon the arrival of more precise information.

Suggested Citation

  • Juan Carlos Hatchondo, 2005. "The value of information with heterogeneous agents and partially revealing prices," Working Paper 05-06, Federal Reserve Bank of Richmond.
    • Handle: RePEc:fip:fedrwp:05-06
    as

    Download full text from publisher

    File URL: http://www.richmondfed.org/publications/research/working_papers/2005/wp_05-6.cfm
    Download Restriction: no
    File URL: https://www.richmondfed.org/-/media/RichmondFedOrg/publications/research/working_papers/2005/pdf/wp05-6.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, April.
    2. Holmstrom, Bengt & Myerson, Roger B, 1983. "Efficient and Durable Decision Rules with Incomplete Information," Econometrica, Econometric Society, vol. 51(6), pages 1799-1819, November.
    3. Hakansson, Nils H & Kunkel, J Gregory & Ohlson, James A, 1982. "Sufficient and Necessary Conditions for Information to Have Social Value in Pure Exchange," Journal of Finance, American Finance Association, vol. 37(5), pages 1169-1181, December.
    4. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    5. Bernhard Eckwert & Itzhak Zilcha, 2003. "Incomplete risk sharing arrangements and the value of information," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 21(1), pages 43-58, January.
    6. Radner, Roy, 1979. "Rational Expectations Equilibrium: Generic Existence and the Information Revealed by Prices," Econometrica, Econometric Society, vol. 47(3), pages 655-678, May.
    7. Ng, David S., 1975. "Information accuracy and social welfare under homogeneous beliefs," Journal of Financial Economics, Elsevier, vol. 2(1), pages 53-70, March.
    8. Tom Krebs, 1999. "Information and Efficiency in Financial Market Equilibrium," Working Papers 99-20, Brown University, Department of Economics.
    9. Rohit Rahi, 2000. "Efficiency Properties of Rational Expectations Equilibria with Asymmetric Information," Econometric Society World Congress 2000 Contributed Papers 1468, Econometric Society.
    10. Bhattacharya, Utpal & Spiegel, Matthew, 1991. "Insiders, Outsiders, and Market Breakdowns," The Review of Financial Studies, Society for Financial Studies, vol. 4(2), pages 255-282.
    11. Hellwig, Martin F., 1980. "On the aggregation of information in competitive markets," Journal of Economic Theory, Elsevier, vol. 22(3), pages 477-498, June.
    12. Mr. Burkhard Drees & Mr. Bernhard Eckwert, 2002. "Welfare Effects of Transparency in Foreign Exchange Markets: The Role of Hedging Opportunities," IMF Working Papers 2002/219, International Monetary Fund.
    13. Ausubel, Lawrence M., 1990. "Partially-revealing rational expectations equilibrium in a competitive economy," Journal of Economic Theory, Elsevier, vol. 50(1), pages 93-126, February.
    14. Ausubel, Lawrence M, 1990. "Insider Trading in a Rational Expectations Economy," American Economic Review, American Economic Association, vol. 80(5), pages 1022-1041, December.
    15. Martin Schneider & Juan Carlos Hatchondo & Per Krusell, 2005. "A Quantitative Model of Competitive Asset Pricing Under Private Information," 2005 Meeting Papers 464, Society for Economic Dynamics.
    16. Citanna, Alessandro & Villanacci, Antonio, 2000. "Incomplete Markets, Allocative Efficiency, and the Information Revealed by Prices," Journal of Economic Theory, Elsevier, vol. 90(2), pages 222-253, February.
    17. Hirshleifer, Jack, 1971. "The Private and Social Value of Information and the Reward to Inventive Activity," American Economic Review, American Economic Association, vol. 61(4), pages 561-574, September.
    18. Kunkel, J Gregory, 1982. "Sufficient Conditions for Public Information to Have Social Value in a Production and Exchange Economy," Journal of Finance, American Finance Association, vol. 37(4), pages 1005-1013, September.
    19. Rohit Rahi, 1996. "Adverse Selection and Security Design," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 63(2), pages 287-300.
    20. José M. Marín & Rohit Rahi, 2000. "Information Revelation and Market Incompleteness," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(3), pages 563-579.
    21. Dubey, Pradeep & Geanakoplos, John & Shubik, Martin, 1987. "The revelation of information in strategic market games : A critique of rational expectations equilibrium," Journal of Mathematical Economics, Elsevier, vol. 16(2), pages 105-137, April.
    22. Burkhard Drees & Bernhard Eckwert, 2003. "Welfare Effects of Transparency in Foreign Exchange Markets: the Role of Hedging Opportunities," Review of International Economics, Wiley Blackwell, vol. 11(3), pages 453-463, August.
    23. Jonathan B. Berk, 1997. "The acquisition of information in a dynamic market (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 9(3), pages 441-451.
    24. Banerjee, Anurag N. & Seccia, Giulio, 2002. "On the "Hirshleifer effect'' of unscheduled monetary policy announcements," Discussion Paper Series In Economics And Econometrics 213, Economics Division, School of Social Sciences, University of Southampton.
    25. Banerjee, Anurag N. & Seccia, Giulio, 2002. "On the "Hirshleifer effect'' of unscheduled monetary policy announcements," Discussion Paper Series In Economics And Econometrics 0213, Economics Division, School of Social Sciences, University of Southampton.
    26. Green, Jerry R, 1981. "Value of Information with Sequential Futures Markets," Econometrica, Econometric Society, vol. 49(2), pages 335-358, March.
    27. Alessandro Citanna & Antonio Villanacci, 2000. "Incomplete Markets, Allocative Efficiency, and the Information Revealed by Prices," Post-Print hal-00463203, HAL.
    28. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
    29. Diamond, Douglas W. & Verrecchia, Robert E., 1981. "Information aggregation in a noisy rational expectations economy," Journal of Financial Economics, Elsevier, vol. 9(3), pages 221-235, September.
    30. Edward E. Schlee, 2001. "The Value of Information in Efficient Risk-Sharing Arrangements," American Economic Review, American Economic Association, vol. 91(3), pages 509-524, June.
    31. Marshall, John M, 1974. "Private Incentives and Public Information," American Economic Review, American Economic Association, vol. 64(3), pages 373-390, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Elyès Jouini & Clotilde Napp, 2008. "Are More Risk-Averse Agents More Optimistic? Insights from a Simple Rational Expectations Equilibrium Model," Post-Print halshs-00176630, HAL.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Piero Gottardi & Rohit Rahi, 2014. "Value Of Information In Competitive Economies With Incomplete Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(1), pages 57-81, February.
    2. Krebs, Tom, 2005. "Fundamentals, information, and international capital flows: A welfare analysis," European Economic Review, Elsevier, vol. 49(3), pages 579-598, April.
    3. Verrecchia, Robert E., 2001. "Essays on disclosure," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 97-180, December.
    4. Lundtofte, Frederik & Leoni, Patrick, 2014. "Growth forecasts, belief manipulation and capital markets," European Economic Review, Elsevier, vol. 70(C), pages 108-125.
    5. Udo Broll & Bernhard Eckwert & Kit Pong Wong, 2014. "Transparency and Risk Sharing in International Trade," Manchester School, University of Manchester, vol. 82(6), pages 716-731, December.
    6. Krebs, Tom, 2007. "Rational expectations equilibrium and the strategic choice of costly information," Journal of Mathematical Economics, Elsevier, vol. 43(5), pages 532-548, June.
    7. Campbell, Colin M., 2004. "Blackwell's ordering and public information," Journal of Economic Theory, Elsevier, vol. 114(2), pages 179-197, February.
    8. Banerjee, Anurag N. & Seccia, Giulio, 2002. "On the "Hirshleifer effect'' of unscheduled monetary policy announcements," Discussion Paper Series In Economics And Econometrics 0213, Economics Division, School of Social Sciences, University of Southampton.
    9. Edward E. Schlee, 2001. "The Value of Information in Efficient Risk-Sharing Arrangements," American Economic Review, American Economic Association, vol. 91(3), pages 509-524, June.
    10. Drees, Burkhard & Eckwert, Bernhard, 2010. "Implications of more precise information for technological development and economic welfare," Journal of Economic Dynamics and Control, Elsevier, vol. 34(2), pages 266-279, February.
    11. Broll, Udo & Eckwert, Bernhard & Eickhoff, Andreas, 2011. "Transparency in the banking sector," Dresden Discussion Paper Series in Economics 05/11, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    12. Mäkinen, Taneli & Ohl, Björn, 2015. "Information acquisition and learning from prices over the business cycle," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 585-633.
    13. Gao, Pingyang, 2008. "Disclosure Quality, Cost of Capital, and Investors’ Welfare," MPRA Paper 9478, University Library of Munich, Germany, revised Jun 2008.
    14. Emanuela Sciubba, 2005. "Asymmetric information and survival in financial markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 25(2), pages 353-379, February.
    15. Galanis, Spyros, 2016. "The value of information in risk-sharing environments with unawareness," Games and Economic Behavior, Elsevier, vol. 97(C), pages 1-18.
    16. Broll, Udo & Eckwert, Bernhard & Eickhoff, Andreas, 2012. "Financial intermediation and endogenous risk in the banking sector," Economic Modelling, Elsevier, vol. 29(5), pages 1618-1622.
    17. Galanis, Spyros, 2016. "The value of information in risk-sharing environments with unawareness," Discussion Paper Series In Economics And Econometrics 1602, Economics Division, School of Social Sciences, University of Southampton.
    18. Elyès Jouini & Clotilde Napp, 2008. "Are More Risk-Averse Agents More Optimistic? Insights from a Simple Rational Expectations Equilibrium Model," Post-Print halshs-00176630, HAL.
    19. Bernhard Eckwert & Burkhard Drees, 2006. "Implications of Better Information for Technological Development and Welfare," EcoMod2006 272100022, EcoMod.
    20. Georgy Chabakauri & Kathy Yuan & Konstantinos E Zachariadis, 2022. "Multi-asset Noisy Rational Expectations Equilibrium with Contingent Claims," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(5), pages 2445-2490.

    More about this item

    Keywords

    Prices;

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedrwp:05-06. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Pascasio (email available below). General contact details of provider: https://edirc.repec.org/data/frbrius.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.