INFORMATION, INCENTIVES AND RATIONAL EXPECTATIONS

Asymmetric information, "interim" equilibrium and mechanism design. In this essay, we present a new equilibrium concept--Interim equilibrium--for games played by agents who have observed noisy private information and who can acquire new information through communication and other means. Next, we demonstrate its application in providing a complete characterization of implementability of performance standards under asymmetric information. It is shown that an analogous Revelation Principle does not hold for Interim equilibria and self-selection need not be a necessary condition for interim-implementability. Instead of the usual direct revelation mechanisms, we suggest that mechanisms should be of a "Tweed ring" variety.; Public goods and private information. In this essay, we extend the previous characterization of interim-implementability to cover the case of economies with public goods.; On the incompatibility of efficiency and equity with informational asymmetry. In this essay, we show that the interim individually rational-Pareto efficient standard and the interim envy free-Pareto efficient standard are not interim-implementable. Moreover, there is no performance standard that simultaneously satisfies interim individual rationality, interim Pareto efficiency and interim-implementability and none that simultaneously satisfy interim envy freedom, interim Pareto efficiency and interim-implementability. We argue that achieving both efficiency and equity in economies with asymmetric information is impossible.; Implementing rational expectations equilibria. In this essay, we argue that mechanisms that are designed to work in markets where agents exploit the information content of available signals must determine not only an allocation, but also an associated market signal. This gives rise to the concept of a Signaling and Allocation Mechanism (SAM). An appropriate equilibrium concept for a SAM is devised. We demonstrate the existence of a SAM that implements the fully revealing Rational Expectations Equilibrium (REE) performance standard. This result does not require an assumption of non-exclusivity of information which is a necessary condition for Bayesian-implementation of REE.; Communication requirements and strategic mechanisms for market organization. In this essay, we carry out a systematic analysis of the incremental communication requirements or informational costs of Nash-implementation. The increment in communication requirements is measured relative to the requirements of the competitive allocation mechanism. It is shown that there is, indeed, a mechanism that implements Walrasian performance with no incremental communication requirements. (Abstract shortened with permission of author.)...