A social welfare function characterizing competitive equilibria of incomplete financial markets

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A social welfare function characterizing competitive equilibria of incomplete financial markets

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Mario Tirelli
Sergio Turner

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Mario Tirelli

Abstract

A classic characterization of competitive equilibria views them as feasible allocations maximizing a weighted sum of utilities. It has been applied to establish fundamental properties of the equilibrium notion, such as existence, determinacy, and computability. However, it fails for economies with missing ? nancial markets. We give such a characterization for economies with missing ?nancial markets, by an amended social welfare function. Its parameters capture both the relative importance of households?welfare?the classic weights?as well as the disagreements among them as to the value of the missing markets. As a by-product, we identify the dimension of the set of interior equilibrium allocations.

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Paper provided by Brown University, Department of Economics in its series Working Papers with number 2008-10.

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Date of creation: 2008
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Handle: RePEc:bro:econwp:2008-10

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Paper
- Mario Tirelli & Sergio Turner, 2008. "A Social Welfare Function Characterizing Competitive Equilibria Of Incomplete Financial Markets," Departmental Working Papers of Economics - University 'Roma Tre' 0093, Department of Economics - University Roma Tre. [Downloadable!]

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-10-21 (All new papers)

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Other versions:
- Timothy J. Kehoe & David K. Levine, 1982. "Comparitive Statics and Perfect Foresight in Infinite Horizon Economies," UCLA Economics Working Papers 259, UCLA Department of Economics. [Downloadable!]
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Mario Tirelli, 2008. "Constrained Inefficiency In Gei: A Geometric Argument," Departmental Working Papers of Economics - University 'Roma Tre' 0086, Department of Economics - University Roma Tre. [Downloadable!]
Other versions:
- Mario Tirelli, 2005. "Constrained Inefficiency In GEI: A Geometric Argument," Working Papers 2005-12, Brown University, Department of Economics. [Downloadable!]
- Tirelli, Mario, 2008. "Constrained inefficiency in GEI: A geometric argument," Journal of Mathematical Economics, Elsevier, vol. 44(11), pages 1197-1214, December. [Downloadable!] (restricted)
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