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European Review of Agricultural Economics Advance Access originally published online on October 8, 2008
European Review of Agricultural Economics 2008 35(3):263-280; doi:10.1093/erae/jbn020
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© Oxford University Press and Foundation for the European Review of Agricultural Economics 2008; all rights reserved. For permissions, please email journals.permissions@oxfordjournals.org

This article appears in the following European Review of Agriculture Economics issue: Special Issue: Plenary Papers of the XIIth EAAE Congress, Ghent, 2008; Theme: People, Food and Environments: Global Trends and European Strategies [View the issue table of contents]

The informational role of prices1

Eirik Romstad

Norwegian University of Life Sciences, Ås, Norway

Corresponding author: Eirik Romstad, Department of Economics and Resource Management, Norwegian University of Life Sciences, PO Box 5033, NO-1432 Ås, Norway. E-mail: eirik.romstad{at}umb.no

The paper extends the framework of prices beyond the standard market setting to incorporate public goods and natural resources. These are settings where one does not usually think of market solutions. Core theory has established that price-taking behaviour by both suppliers and consumers, i.e. the absence of strategic considerations, greatly improves the informational value of prices, and hence of economic equilibria. This also holds when using market-like institutions to allocate resources for public goods. Policy effectiveness in many areas can be improved when agents are induced to reveal, voluntarily and truthfully, their willingness-to-pay or production costs.

Keywords: rational expectations, equilibria, mechanism design, asymmetric information

JEL classification: D40, H40, Q00


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