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International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page Constrained Suboptimality in Economies With Limited Communication
David Bowman
1995-497  (February 1995)

Abstract:  Economies with limited communication contain an externality which typically makes them Pareto inefficient, even taking into account the communication con­straints agents face. In a two period model it is shown that an open and dense set of economies with limited communication are constrained Pareto suboptimal. Thus equilibria of economies with voluntary unemployment, search, or other types of limits on communication are unlikely to be Pareto optimal, even in the absence of moral hazard, adverse selection, or search externalities.

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