SFB 303 Discussion Paper No. A - 518
Author: Laitenberger, Marta
Title: Costly Acquisition of Information with Incomplete Markets
Abstract: In this paper we introduce markets for information about assets'
payoffs in a two-period General Equilibrium Incomplete Markets Model.
We consider asymmetric Walrasian equilibria with endogenous
information allocations and analyze the interaction between demand
for information and equilibrium asset prices. We conclude that for
economies with a high payoff uncertainty there only exist full
information equilibria. In an application of the model, we use this
result to show that it can be profitable for an intermediary to
supply an investment fund of asssets and buy the informaton about
assets' payoffs. The resulting equilibrium Pareto-improves the
equilibrium without intermediation. Thus, if information and its
costly acquisition are taken into account, the existence of redundant
assets can be explained by the model.
Keywords: Incomplete Markets, Asymmetric Information, Financial
JEL-Classification-Number: D52, D82, G20
Creation-Date: April 1996
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