Resolving the Grossman-Stiglitz Paradox Through Track Record Capital

Grossman and Stiglitz (1980) proved that informationally efficient markets are impossible because efficiency destroys the incentive to produce information. Their proof assumes that trading profit is the sole return to information production. This paper relaxes that assumption. When agents accumulate track record capital - a portable asset built by publishing structured judgments verified against outcomes - information production is decoupled from trading, and the paradox dissolves. A CARA-normal general equilibrium model with a judgment market operating alongside the asset market formalizes the resolution. This paper derives the independence of judgment market returns from price efficiency by decomposing the…