Noise and aggregation of information in large markets

Diego García and Branko Urosevic

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: We study a novel class of noisy rational expectations equilibria in markets with large number of agents. We show that, as long as noise increases with the number of agents in the economy, the limiting competitive equilibrium is well-defined and leads to non-trivial information acquisition, perfect information aggregation, and partially revealing prices, even if per capita noise tends to zero. We find that in such equilibrium risk sharing and price revelation play di erent roles than in the standard limiting economy in which per capita noise is not negligible. We apply our model to study information sales by a monopolist, information acquisition in multi-asset markets, and derivatives trading. The limiting equilibria are shown to be perfectly competitive, even when a strategic solution concept is used.

Keywords: Partially revealing equilibria; competitive equilibrium; rational expectations; information acquisition; markets for information; derivatives trading; multi-asset markets; share auctions (search for similar items in EconPapers)
JEL-codes: D82 G14 (search for similar items in EconPapers)
Date: 2004-10
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:785

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