Stabilizing through Poor Information

Gabriel Desgranges and Stephane Gauthier

No 2008-32, THEMA Working Papers from THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise

Abstract: This paper studies the effect of asymmetric information on equilibrium stability in a class of linear models where the actual state depends on the forecasts about it. Stability is deffined by the so-called eductive criterion which relies on common knowledge of rationality. The main result is that stability obtains when the proportion of uninformed agents is high enough. The expectational behavior of these agents indeed displays more inertia. This behavior, and then the actual outcome, are therefore easier to predict. This result is linked to the issue of informational efficiency. Extensions to cases with higher order uncertainty, additional agents heterogeneity, and sunspots are also considered.

Keywords: Asymmetric information; eductive stability; rational expecta- tions; stabilization. (search for similar items in EconPapers)
JEL-codes: C62 D82 D84 (search for similar items in EconPapers)
Date: 2008
References: Add references at CitEc
Citations:

Downloads: (external link)
http://thema.u-cergy.fr/IMG/documents/2008-32.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ema:worpap:2008-32

Access Statistics for this paper

More papers in THEMA Working Papers from THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise Contact information at EDIRC.
Bibliographic data for series maintained by Stefania Marcassa ( this e-mail address is bad, please contact ).