Efficiency under full information. Derive the necessary conditions for Pareto efficiency of the economy in this section and show that in addition to the usual efficient risk bearing conditions (like...

Efficiency under full information. Derive the necessary conditions for Pareto efficiency of the economy in this section and show that in addition to the usual efficient risk bearing conditions (like [D.26]) the Pareto efficient input choice satisfies lEuc s x f′ s(z)  Evsz  0. Interpret this production condition. Now show that if there are complete state-contingent income claim markets and either (a) the individuals have rational expectations about spot prices for the commodity or (b) there is a contingent claim market for the commodity, then the market equilibrium is Pareto efficient.