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Constrained suboptimality in economies with limited communication

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Abstract
Economies with limited communication contain an externality which typically makes them Pareto inefficient, even taking into account the communication constraints agents face. In a two period model it is shown that an open and dense set of economies with limited communication are constrained Pareto suboptimal. Thus equilibria of economies with voluntary unemployment, search, or other types of limits on communication are unlikely to be Pareto optimal, even in the absence of moral hazard, adverse selection, or search externalities.

Suggested Citation

  • David Bowman, 1995. "Constrained suboptimality in economies with limited communication," International Finance Discussion Papers 497, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:497
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