## Abstract

In the modern world a large amount of resources is devoted to producing, collecting and transmitting information. The volume of information passing through various channels seems to be expanding exponentially. Yet, in standard economic models, the amount of information required to achieve an efficient allocation of resources is minimal. The resources in the world economy have certainly not been growing at the rate of the information available. How then should one explain this apparent paradox ? In standard models, information is only transmitted through prices to anonymous and passive agents. In reality, agents communicate with each other and pass information in a number of ways. They trade with each other, they influence each others’ expectations, they infer information from each others’ actions and they set and modify prices individually. Without taking into account this direct interaction between agents one has a very incomplete picture of the role of information and prices in the economy. This chapter takes a look at how we can capture the nature and importance of this direct interaction between agents. However, first let me briefly analyse the role of information in most economic models.

## Keywords

Financial Market General Equilibrium Model Efficient Allocation Foreign Exchange Market Private Signal## Preview

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