This project deals with economies in which there is asymmetric information. It consists of three parts. The first part develops a general framework for the study of markets when agents have imperfect information. A general equilibrium model is developed in which agents have private information. A novel measure is used of the significance of the information held by economic agents. The project establishes the conditions under which a large number of agents ameliorates the inefficiencies due to the presence of asymmetric or private information. It investigates the extent to which outcomes which are simultaneously nearly efficient and incentive compatible can be outcomes of markets. The second part examines the problems of undertaking projects in environments in which individuals' valuations are privately known and individuals cannot be forced to participate. The last section explores the effect of allowing communication prior to the play of a Bayesian game. Most analyses of games with asymmetric information ignore this possibility. Allowing communication can expand the set of equilibria and, if refinements of Bayes-Nash equilibria are used, can shrink the set of predicted outcomes. This project should be supported because the issues addressed are important. The research in the first part on general equilibrium models of agents with private information could provide a unifying framework for the different theories of imperfect information. The preliminary results from this line of research find that even a small amount of private information can cause surprisingly large inefficiencies in economies with large numbers of economic agents. The second part should provide useful insights into the many problems in which a group has to take a collective action and allocate individual costs or benefits of that actions. The most pervasive example of such a problem is whether to undertake a public project and, if undertaken, how the costs of the project are to be distributed among the members of the group. The third part extends Bayesian game theory by allowing communication prior to the play of the game. This is important because Bayesian game models are used in nearly every part of economics to model problems in which agents may have different information and the preliminary results by the investigator show that pre-play communication can have a very significant effect on the outcome of the Bayesian game.
