Incentive compatible self-fulfilling mechanisms and rational expectations

This paper extends the exact equivalence result between the allocations realized by self-fulfilling mechanisms and rational expectations equilibrium allocations in Forges and Minelli (1997) to a large finite-agent replica economy where different replicas of the same agent are allowed to receive diff...

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Bibliographic Details
Published in:Games and economic behavior 2021-03, Vol.126, p.100-135
Main Author: Huang, Xuesong
Format: Article
Language:English
Subjects:
Incentive compatible self-fulfilling mechanism
Large economy
Rational expectations equilibrium
Strategic market game
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Summary:This paper extends the exact equivalence result between the allocations realized by self-fulfilling mechanisms and rational expectations equilibrium allocations in Forges and Minelli (1997) to a large finite-agent replica economy where different replicas of the same agent are allowed to receive different private information. The first result states that the allocation realized by any incentive compatible self-fulfilling mechanism is an approximate rational expectations equilibrium allocation. Conversely, the second result states that, given any rational expectations equilibrium satisfying a “uniform continuity” condition on the equilibrium price, one can construct an approximate incentive compatible self-fulfilling mechanism whose equilibrium allocation coincides with the rational expectations equilibrium allocation for all non-monetary commodities.
ISSN:0899-8256
1090-2473
DOI:10.1016/j.geb.2020.12.003