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Competitive Equilibrium with Restricted Participation: The Case of Circular Trade

Author

Listed:
  • Luciana Fiorini
  • Wilfredo Maldonado
  • José Rodrigues-Neto

Abstract

In a model of competitive equilibrium with restricted participation, we prove the existence of a circular competitive equilibrium (CCE). There is a unique CCE if all coefficients of relative risk aversion are bounded above by 1. The direction of trade is determined by the product of the marginal rates of substitution calculated at initial endowments. We also propose a measure for the trade volume (for each individual and for the entire market), prove a no-trade result, and calculate wealth and belief effects on the circular trade economy.

Suggested Citation

  • Luciana Fiorini & Wilfredo Maldonado & José Rodrigues-Neto, 2018. "Competitive Equilibrium with Restricted Participation: The Case of Circular Trade," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 174(3), pages 514-547, September.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201809)174:3_514:cewrpt_2.0.tx_2-y
    DOI: 10.1628/093245617X15096094637995
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    More about this item

    Keywords

    beliefs; circular trade; competitive equilibrium; incomplete information; restricted participation;
    All these keywords.

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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