Abstract
We study the rational expectations equilibrium (REE) in the framework of a repeated economy. In each repetition agents observe the sequence of asymmetric REE’s occurred in the past to update their private information. We show that, in the limit, agents reach a symmetric information REE which exists universally (and not generically) and it is Pareto efficient and obviously incentive compatible. We also prove the converse result, i.e., given a symmetric information REE, we can construct a sequence of approximate asymmetric REE allocations that converges to the symmetric information REE. In view of the above results, the symmetric information REE provides a rationalization for the asymmetric one.
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Dedicated to David K. Levine for his 65th birthday.
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We thank a referee, Drew Fudenberg and David Levine, for useful comments, discussions and suggestions. This research was carried out in the frame of Programme STAR Plus Exchange of Indivisible Goods, Externalities and Groups [21-UNINA-EPIG-075], financially supported by UniNA and Compagnia di San Paolo. This study was also funded by the European Union - Next Generation EU, in the framework of the GRINS -Growing Resilient, INclusive and Sustainable project (GRINS PE00000018 - CUP E63C22002140007). The views and opinions expressed are solely those of the authors and do not necessarily reflect those of the European Union, nor can the European Union be held responsible for them.
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Pesce, M., Urbinati, N. & Yannelis, N.C. On the limit points of an infinitely repeated rational expectations equilibrium. Econ Theory (2024). https://doi.org/10.1007/s00199-024-01576-7
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DOI: https://doi.org/10.1007/s00199-024-01576-7