DECISIONS AND OPTIMALITY IN COMPETITIVE STOCK OWNERSHIP ECONOMIES

Reexamination of the decision theoretic structure of a Diamond-Dreze s tock market economy reveals that general lack of optimal equilibrium a llocations is an informational problem. Prices of firms' shares and ob served production convey information sufficient for weak form market e fficiency, but is inadequate for investors to select socially optimal portfolios which constitute strong form market efficiency. Revising th e optimality concept to accommodate information constraints yields a n otion of information constrained Pareto optimality. This concept refle cts general application of the principle of semistrong form market eff iciency. Our approach subsumes the Bayesian approach.