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Help prevent bad economics! Question on Greenwald-Stiglitz Theorem and market efficiency -xpost asksocialscience (self.badeconomics)

rob777 が 投稿

I originally asked this on /asksocialscience and received not even an attempt at an answer or direction on what to read. I considered posting this on /economics but text posts seem to not be an option and the sub is much more geared to current events (and ideological bickering from visitors of /libertarian and /politics). Most of the people that could adequately answer my question reside in this sub anyway so I was hoping that I could get an answer or direction in where to search.

If I understand correctly G-S states that in the absence of complete markets and perfect information markets are not even constrained Pareto efficient, meaning markets are chronically inefficient. However in Edgeworth's limit theorem he proves that as the number of traders approaches an infinite amount the set of allocations that are improvements shrinks to zero. So as I understand it, a Pareto efficient allocation will be attained regardless of information and incomplete markets given an infinite number of traders. I know that these theorems can't contradict each other so what am I understanding incorrectly? As an additional question, how efficient can we say markets are?

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[–]HealthcareEconomist3Krugman Triggers Me 4ポイント5ポイント  (1子コメント)

Edgeworth's theorem assumes perfect information and no frictions (no searching cost for information etc).

The Greenwald-Stiglitz theorem doesn't account for trusted party information when considering asymmetry and allows for intervention PO which fails due to an OLG boundary problem.

I know that these theorems can't contradict each other

Why? They are both abstractions, they are certainly not inviolate.

For the OLG problem public choice theory deals directly with this, while it doesn't really answer how to prevent the problem it does explain why generational issues exist in policy that prevents policy from ever reaching a PO state.

For Edgeworth's theorem see Epsilon-equilibrium as well as game theory in general, beyond not needing perfect information and allowing for searching costs it deals with how transactional strategies play in to equilibria thus allowing for many states of PO.

how efficient can we say markets are?

Good luck getting an answer on this one :) I wouldn't touch it with an nm ft pole.

[–]rob777[S] 0ポイント1ポイント  (0子コメント)

Thank you for taking the time to answer, it's much appreciated.

For the OLG problem public choice theory deals directly with this, while it doesn't really answer how to prevent the problem it does explain why generational issues exist in policy that prevents policy from ever reaching a PO state.

I'm sorry, I may be more ignorant than what I thought: what is the OLG (boundary) problem? I've read about public choice theory and understand, generally, some of the problems that the government faces but I don't recall hearing about this, probably because I have a layman's understanding.

Good luck getting an answer on this one :) I wouldn't touch it with an nm ft pole.

Ha! Ya I expected this might be opening up a can of worms. Can you suggest some literature on differing perspectives that I could read?

[–]wumbotariandictatorship of the wumbotariat 3ポイント4ポイント  (3子コメント)

I am sorry that you didn't get a response elsewhere, but economics questions arent really supposed to be posted here.

[–]HealthcareEconomist3Krugman Triggers Me 4ポイント5ポイント  (2子コメント)

There have been a number of infrequent semi-OT threads since the founding of the empire, as long as it doesn't happen all the time couldn't this be kept a little fuzzy?