The project addresses core economic issues associated with developing tractable economic models of environments with uncertainty and with private information. Despite past advances much work is needed to make these models of economies more like the environments of actual economies. The project contributes to resolving this problem in three ways. First, it extends theory to include more realistic and more complicated private information possibilities and various additional impediments to trade, e.g., limited communication, spatial separation, indivisibilities, and limited commitments. Second, it investigates numerical methods to map the parameters describing the environments to outcomes even if strong qualitative theorems are not readily available. Numerical methods are used to see how the time series of currency, prices, interest rates, incomes, and consumption vary with the parameters of the environment. Third, historical material and panel data from contemporary village economies are used to test predictions from the theory with actual observations. The new theory is used to address issues such as optimal information acquisition; the implications for volatility of optimal learning; group accounting systems and financial instruments as communication devices; the information and store-of-value roles for currency; the role of financial intermediaries and optimal regulation of intermediaries; the intertemporal and asset pricing implications of indivisible and nonretradable durable goods.
