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Value of Information in Competitive Economies with Incomplete Markets
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1725-6704
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EUI ECO; 2010/34
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GOTTARDI, Piero, RAHI, Rohit, Value of Information in Competitive Economies with Incomplete Markets, EUI ECO, 2010/34 - https://hdl.handle.net/1814/14440
Abstract
We study the value of information in a competitive economy in which agents trade in asset markets to reallocate risk. We characterize the kinds of information that allow a welfare improvement when portfolios can be freely reallocated. We then compare competitive equilibria before and after a change in information. We show that generically, if markets are sufficiently incomplete, the welfare effects are completely arbitrary: there typically exist changes in information that make all agents better off, or all agents worse off.