INFORMATIONAL EFFICIENCY AND WELFARE IN THE STOCK-MARKET

In an overlapping generations model each generation invests a given bu dget into a portfolio consisting of risky shares and a riskless asset. In each period all agents receive information about the future divide nds of the shares. There is a unique stationary equilibrium. This equi librium is not constrained efficient in the sense that there exists a (non market-clearing) share price such that all agents would be better off, if the shares were exchanged at this price. Further, for certain stochastic environments the public information is socially harmful, a nd we derive a necessary and sufficient condition for this to occur.