Incentive compatible core and competitive equilibria in differential information economies (Q5953035)

The literature has shown that in a standard exchange economy with complete information, competitive equilibrium allocations exist and belong to the core. This paper extends the above classical results to economies with differential information. The model assumes a finite exchange economy in which each agent's utility function depends on all agents' information. The paper establishes that in such an economy, competitive equilibrium allocations exist and belong to the ex ante incentive-compatible core of the economy. This paper also constructs the replica economy by requiring only that agents' utilities depend only on the information of all agents in the same copy. The paper shows that the competitive equilibrium belongs to the core of any replica economy so defined.