Indeterminacy in Incomplete Market Economies
AbstractIt is shown that in a two-period economy with a continuum of states and real assets, the following holds: (1) if the asset structure is complete, then equilibria is finite; (2) if there are a finite number of real assets (this can approximate completeness arbitrarily close) then, for a non-empty open set of economies, there are a continuum of distinct equilibria. Asymptotic versions (on the number of states and on the number of assets) of the result are also given. It is argued, therefore, that incompleteness, by itself, may be a leading source of indeterminacy.
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