We analyze communication about the social returns to investment in a public good. We model two agents who have private information about these returns as well as their own taste for cooperation, or social preferences. Before deciding to contribute or not, each agent submits an unverifiable...

Sellers in real-estate markets, on internet platforms, in auction houses, and so forth, routinely pose non-binding price requests. Using a laboratory experiment, we examine how competition moderates the way such cheap-talk communication affects trade between buyers and sellers. For bilateral...

Economies with asymmetric information are encompassed by an extension of the model of general competitive equilibrium that does not require an explicit modeling of private information. Sellers have discretion over deliveries on contracts; this is in common with economies with default, incomplete...

Consider an exchange economy with asymmetric information. What is the set of outcomes that are consistent with common knowledge of rationality and market clearing? To address this question we define an epistemic model for the economy that provides a complete description not only of the beliefs...

The conflict between Pareto optimality and incentive compatibility, that is, the fact that some Pareto optimal (efficient) allocations are not incentive compatible is a fundamental fact in information economics, mechanism design and general equilibrium with asymmetric information. This important...

Firms with private information about the outcomes of production under uncertainty may face capital (liquidity) constraints that prevent them from attaining efficient levels of investment in a world with costly and/or imperfect monitoring. As an alternative, we examine the efficiency of a simple...

The objective of this note is to analyze some implications of the model of commodity money described in Banerjee and Maskin (1996) which may seem paradoxical. In order to do this, we incorporate a general production cost structure into the model. We focus on two different results. First, the...

This paper analyzes two equivalent equilibrium motions under asymmetric information: risk neutral rational expectations equilibria (rn-REE), and common knowledge equilibria. We show that the set of fully informative rn-REE is a singleton, and we provide necessary and sufficient conditions for...

This paper introduces a theory of market incompleteness based on the information transmission role of prices and its adverse impact on the provision of insurance in financial markets. We analyse a simple security design model in which the number and payoff of securities are endogenous. Agents...

Attainment of rational expectations equilibria in asset markets calls for the price system to disseminate traders' private information to others. It is known that markets populated by asymmetrically-informed profit-motivated human traders can converge to rational expectations equilibria. This...