In an economy of interacting agents with both idiosyncratic and aggregate shocks, we examine how the structure of private information influences aggregate volatility. The maximal aggregate volatility is attained in a noise free information structure in which the agents confound idiosyncratic and aggregate shocks, and display excess response to the aggregate shocks, as in Lucas [14]. For any given variance of aggregate shocks, the upper bound on aggregate volatility is linearly increasing in the variance of the idiosyncratic shocks. Our results hold in a setting of symmetric agents with linear best responses and normal uncertainty. We establish our results by providing a characterization of the set of all joint distributions over actions and states that can arise in equilibrium under any information structure. This tractable characterization, extending results in Bergemann and Morris [8], can be used to address a wide variety of questions linking information with the statistical moments of the economy.

We analyze demand function competition with a …nite number of agents and private information. We show that the nature of the private information determines the market power of the agents and thus price and volume of equilibrium trade.We establish our results by providing a characterization of the set of all joint distributions over demands and payo¤ states that can arise in equilibrium under any information structure. In demand function competition, the agents condition their demand on the endogenous information contained in the price.We compare the set of feasible outcomes under demand function to the feasible outcomes under Cournot competition. We …nd that the …rst and second moments of the equilibrium distribution respond very di¤erently to the private information of the agents under these two market structures. The …rst moment of the equilibrium demand, the average demand, is more sensitive to the nature of the private information in demand function competition, re ‡ecting the strategic impact of private information. By contrast, the second moments are less sensitive to the private information, re ‡ecting the common conditioning on the price among the agents.

In an economy of interacting agents with both idiosyncratic and aggregate shocks, we examine how the information structure determines aggregate volatility. We show that the maximal aggregate volatility is attained in a noise free information structure in which the agents confound idiosyncratic and common components of the payo¤ state, and display excess response to the common component, as in Lucas (1972). The upper bound on aggregate volatility is linearly increasing in the variance of idiosyncratic shocks, for any given variance of aggregate shocks. Our results hold in a setting of symmetric agents with linear best responses and normal uncertainty. We show our results by providing a characterization of the set of all joint distributions over actions and states that can arise in equilibrium under any information structure. This tractable characterization, extending results in Bergemann and Morris (2013b), can be used to address a wide variety of questions.

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We consider demand function competition with a …nite number of agents and private information. We show that any degree of market power can arise in the unique equilibrium under an information structure that is arbitrarily close to complete information. In particular, regardless of the number of agents and the correlation of payo¤ shocks, market power may be arbitrarily close to zero (so we obtain the competitive outcome) or arbitrarily large (so there is no trade in equilibrium). By contrast, price volatility is always less than the variance of the aggregate shock across all information structures.