Incentive compatibility of rational expectations equilibrium in large economies: a counterexample

Yeneng Sun; Lei Wu; Nicholas C. Yannelis

doi:10.1007/s40505-013-0010-8

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Incentive compatibility of rational expectations equilibrium in large economies: a counterexample

Journal article

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Incentive compatibility of rational expectations equilibrium in large economies: a counterexample

Yeneng Sun, Lei Wu and Nicholas C. Yannelis

Economic theory bulletin, Vol.1(1), pp.3-10

05/01/2013

DOI: 10.1007/s40505-013-0010-8

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Abstract

This note provides a counterexample for a large economy in which a rational expectations equilibrium (REE) does not possess the desirable property of incentive compatibility for each agent. The key point here is that the REE equilibrium price depends on the private information of every individual agent. Thus, we propose to focus on those REE prices that depend only on the macro states and are not influenced by individual agents’ private information. Such a REE will be incentive compatible.

Economic Theory/Quantitative Economics/Mathematical Methods

Economics

Economics and Finance

Game Theory

Macroeconomics/Monetary Economics//Financial Economics

Public Finance

Short Paper

Social and Behav. Sciences

Details

Title: Subtitle: Incentive compatibility of rational expectations equilibrium in large economies: a counterexample
Creators: Yeneng Sun - National University of Singapore
Lei Wu - J.P. Morgan
Nicholas C. Yannelis - National University of Singapore
Resource Type: Journal article
Publication Details: Economic theory bulletin, Vol.1(1), pp.3-10
Publisher: Springer International Publishing AG
DOI: 10.1007/s40505-013-0010-8
ISSN: 2196-1085
eISSN: 2196-1093
Language: English
Date published: 05/01/2013
Academic Unit: Economics
Record Identifier: 9984380734002771

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