information aggregation and prices

James Jordan
From The New Palgrave Dictionary of Economics, Second Edition, 2008
Edited by Steven N. Durlauf and Lawrence E. Blume
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Abstract

Economists commonly interpret market-clearing prices as the signals that competitive markets transmit to economic agents to facilitate the efficient allocation of resources. Informational decentralization theory formalizes this interpretation by characterizing the market mechanism as the unique decentralized mechanism that achieves efficient allocation with the minimal required communication. Rational expectations equilibrium theory formalizes a different aspect of the interpretation, showing that markets transmit to each trader all of the decision-relevant information in the market.
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How to cite this article

Jordan, James. "information aggregation and prices." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 29 August 2014 <http://www.dictionaryofeconomics.com/article?id=pde2008_I000247> doi:10.1057/9780230226203.0797

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