AbstractThis paper analyses the impact of multiple competitive equilibria and complete markets in a simple general equilibrium model. A random selection from the equilibrium correspondence of a finite exchange economy defines probability distributions on equilibrium prices. Asset markets allow traders to insure against the resulting uncertainty. If asset markets are complete, equilibrium selections are necessarily degenerate. The selection cannot be non- trivially random, and must assign probability one to particular equilibrium price vectors. In this case, asset prices reveal the choice of equilibrium price vectors and achieve the coordination of traders' expectations. If the asset market is incomplete, equilibrium selections can be non-degenerate, so that price uncertainty is self-fulfilling. A fully insured random selection defines an iterative procedure of reallocations which is Pareto improving at each step. The process converges to a Pareto optimum in finitely many steps. The key requirement is that the random selection be continuous, which is a generic condition for smooth exchange economies with strictly concave utility functions.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1994071.
Date of creation: 01 Dec 1994
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multiple equilibria; random selections; asset markets; rational expectations; convergence;
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- Jayasri Dutta & Stephen Morris, .
"The Revelation of Information and Self-Fulfilling Beliefs,"
Penn CARESS Working Papers
269cceedcbd401a5e46548b88, Penn Economics Department.
- Dutta, Jayasri & Morris, Stephen, 1997. "The Revelation of Information and Self-Fulfilling Beliefs," Journal of Economic Theory, Elsevier, vol. 73(1), pages 231-244, March.
- DUTTA, Jayasri & MORRIS, Stephen, 1995. "The Revelation of Information and Self-Fulfilling Beliefs," CORE Discussion Papers 1995076, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Jayasri Dutta & Stephen Morris, . ""The Revelation of Information and Self-Fulfilling Beliefs''," CARESS Working Papres 95-03, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
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