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Indeterminacy in Incomplete Market Economies


Author Info

  • Mas-Colell, Andreu


It 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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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 1 (1991)
Issue (Month): 1 (January)
Pages: 45-61

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Handle: RePEc:spr:joecth:v:1:y:1991:i:1:p:45-61

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Cited by:
  1. Enrique Covarrubias, 2007. "Regular Infinite Economies," Levine's Working Paper Archive 843644000000000034, David K. Levine.
  2. Enrique Covarrubias, 2011. "The Number of Equilibria of Smooth Infinite Economies," Working Papers 2011-02, Banco de México.
  3. Bettzuge, Marc Oliver, 1998. "An extension of a theorem by Mitjushin and Polterovich to incomplete markets," Journal of Mathematical Economics, Elsevier, vol. 30(3), pages 285-300, October.
  4. Elvio Accinelli, 1999. "On uniqueness of equilibrium for complete markets with infinitely many goods and in finance models," Estudios de Economia, University of Chile, Department of Economics, vol. 26(1 Year 19), pages 45-61, June.
  5. Enrique Covarrubias, 2010. "The Equilibrium Set of Economies with a Continuous Consumption Space," Working Papers 2010-10, Banco de México.
  6. Polemarchakis, H. M. & Siconolfi, P., 1998. "Prices, Asset Markets and Indeterminacy," Journal of Economic Theory, Elsevier, vol. 82(1), pages 46-64, September.
  7. Hervé Crès & Tobias Markeprand & Mich Tvede, 2009. "Incomplete Financial Markets and Jumps in Asset Prices," Discussion Papers 09-12, University of Copenhagen. Department of Economics.
  8. Heracles M. Polemarchakis & P. Siconolfi, 1996. "Prices, Asset Markets and Indeterminacy," Cowles Foundation Discussion Papers 1136, Cowles Foundation for Research in Economics, Yale University.
  9. Laurent E. Calvet, 1999. "Incomplete Markets and Volatility," Harvard Institute of Economic Research Working Papers 1865, Harvard - Institute of Economic Research.


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