On the Impossibility of Informationally Efficient Markets.

Grossman, S. J., & Stiglitz, J. E. (1980). On the Impossibility of Informationally Efficient Markets. American Economic Review, 70(3), 393-408.

Type

Journal article

Intellectual base

Primary research

Year

1980

Volume

70

Issue

3

Pages

393-408

Link

https://www.jstor.org/stable/1805228

Cited from

economics_finance

Cited by

3 citations across 3 artifacts.

Each citation links to the sentence it supports in the citing article.

Primes

• Efficient Market Hypothesis (EMH)
  • Grossman and Stiglitz (1980) sharpen this null with their paradox—if prices were perfectly informative, no one would expend resources to acquire information—forcing every applied test to specify the costly information set being aggregated.
• Price Mechanism
  • Structural tension: If prices perfectly aggregated all private information, no one would bother to gather information, because the price would already contain it — the impossibility result formalized by Grossman and Stiglitz (1980).

    This sourceEstablishes that fully informationally efficient prices are impossible whenever information is costly to acquire — the canonical "Grossman-Stiglitz paradox" of the price-mechanism literature.

Mechanisms

• Information-Source Inventory Matrix
  • Because information is genuinely costly to gather and process

    This sourceEstablishes the Grossman–Stiglitz result that costly information cannot be fully reflected in prices without eliminating the return that motivates information gathering.

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