ifdp · January 31, 1995

Constrained Suboptimality in Economies With Limited Communication

Abstract

Economies with limited communication contain an externality which typically makes them Pareto inefficient, even taking into account the communication con­straints agents face. In a two period model it is shown that an open and dense set of economies with limited communication are constrained Pareto suboptimal. Thus equilibria of economies with voluntary unemployment, search, or other types of limits on communication are unlikely to be Pareto optimal, even in the absence of moral hazard, adverse selection, or search externalities.

Abstract Economies with limited communication contain an externality which typically makes them Pareto inefficient, even taking into account the communication con straints agents face. In a two period model it is shown that an open and dense set ofeconomies with limited communication are constrained Pareto suboptimal. Thus equilibriaofeconomies with voluntaryunemployment,search, or other types oflimits on communication are unlikely to be Paretooptimal, even in the absence of moral hazard, adverse selection, or search externalities.

Cite this document
APA
David Bowman (1995). Constrained Suboptimality in Economies With Limited Communication (IFDP 1995-497). Board of Governors of the Federal Reserve System, International Finance Discussion Papers. https://whenthefedspeaks.com/doc/ifdp_1995-497
BibTeX
@techreport{wtfs_ifdp_1995_497,
  author = {David Bowman},
  title = {Constrained Suboptimality in Economies With Limited Communication},
  type = {International Finance Discussion Papers},
  number = {1995-497},
  institution = {Board of Governors of the Federal Reserve System},
  year = {1995},
  url = {https://whenthefedspeaks.com/doc/ifdp_1995-497},
  abstract = {Economies with limited communication contain an externality which typically makes them Pareto inefficient, even taking into account the communication con­straints agents face. In a two period model it is shown that an open and dense set of economies with limited communication are constrained Pareto suboptimal. Thus equilibria of economies with voluntary unemployment, search, or other types of limits on communication are unlikely to be Pareto optimal, even in the absence of moral hazard, adverse selection, or search externalities.},
}