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Equilibrium with asymmetric information and restricted participation: the no-arbitrage characterization

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Abstract
The paper presents a pure exchange economy, where consumers may have asymmetric information, non-ordered preferences and a restricted access to purely financial markets. Under standard conditions, it shows that the two concepts of no-arbitrage price and equilibrium asset price coincide. Namely, any collection of state prices in realizable states is proved to support a sequential equilibrium. This result extends Cass (2006), De Boisdeffre (2007) and similar results of symmetric information, such as Martins-da-Rocha and Triki's (2005) or Cornet and Gopalan's (2010). Moreover, the definition and existence of the sequential equilibrium do not rely on Radner's (1972, 1979) rational expectation assumptions, which may be dropped

Suggested Citation

  • Lionel De Boisdeffre, 2024. "Equilibrium with asymmetric information and restricted participation: the no-arbitrage characterization," Documents de travail du Centre d'Economie de la Sorbonne 24005, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:24005
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    File URL: http://mse.univ-paris1.fr/pub/mse/CES2024/24005.pdf
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    File URL: https://shs.hal.science/halshs-04612814
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    More about this item

    Keywords

    incomplete markets; restricted participation; arbitrage; existence of equilibrium; rational expectations; perfect foresight; asymmetric information;
    All these keywords.

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets

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