Price Dispersion, Information and LearningJournal of Monetary Economics (2006)
AbstractWe consider an economy where trade is decentralized and agents have incomplete information with respect to the value of money. Agents' learning evolves from private experiences and we explore how the formation of prices interacts with learning. We show that multiple equilibria arise, and equilibria with price dispersion entail more learning than equilibria with one price. Price dispersion increases communication about private histories, which in turn increases the overall amount of information in the economy. We also compare ex-ante welfare under price dispersion and one price. Our results show that, despite the existence of some meetings where no trade takes place, ex-ante welfare under price dispersion may be higher than under one price.
- price dispersion,
Publication DateSeptember, 2006
Citation InformationLuis Araujo. "Price Dispersion, Information and Learning" Journal of Monetary Economics Vol. 53 Iss. 6 (2006)
Available at: http://works.bepress.com/luis_araujo/2/