Constrained suboptimality in incomplete markets: a general approach and two applications
AbstractIn this paper we re-examine generic constrained suboptimality of equilibrium allocations with incomplete numeraire asset markets. We provide a general framework which is capable of resolving some issues left open by the previous literature, and encompasses many kinds of intervention in partially controlled market economies. In particular, we establish generic constrained suboptimality, as studied by Geanakoplos and Polemarchakis, even without an upper bound on the number of households. Moreover, we consider the case where asset markets are left open, and the planner can make lump-sum transfers in a limited number of goods. We show that such a perfectly anticipated wealth redistribution policy, though consistent with the assumed incomplete financial structure, is typically effective.
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Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 11 (1998)
Issue (Month): 3 ()
Note: Received: August 14, 1995; revised version: April 11, 1997
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Web page: http://link.springer.de/link/service/journals/00199/index.htm
Find related papers by JEL classification:
- C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
- D60 - Microeconomics - - Welfare Economics - - - General
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
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