ON THE REVELATION OF PRIVATE INFORMATION IN STOCK-MARKET ECONOMIES

The notion that an agent in a given market can infer from the market p rice the (non-price) information received by other agents, as embodied in the existing studies of revealing rational expectations equilibriu m, requires that the agent know the correct functional relationship be tween the non-price information of all agents and the resulting equili brium price. In this paper we show that this condition is unnecessary in a stock market economy where the technologies of firms are the only private information, where firm managers use this private information in their own optimization programs (which include stock purchases), a nd where other agents care only about the firm's profits. Interestingl y, this result does not extend to the case of consumers with private i nformation. (C) 1998 Elsevier Science S.A. All rights reserved.