Informational Robustness of Competitive Equilibria

Consider an exchange economy with complete information. We perturb this economy by assuming that each agent’s observation about the true state of the world is noisy. The paper investigates the robustness of equilibria of the complete information economy with respect to incomplete information. We provide conditions under which complete information equilibria are limits of equilibria of the economies with incomplete information, as the noise in the signal converges to zero. ∗Address of the authors: Department of Economics, University of Illinois, 1206 South Sixth Street, Champaign IL 61820. We wish to thank two anonymous referees and an associate editor for their careful reading of the original draft, and for many valuable suggestions.