Inefficiency of competitive equilibrium with hidden action and financial markets
AbstractIn this paper, we study a pure exchange economy with idiosyncratic uncertainty, hidden action and multiple consumption goods.We consider two different market structures: contingent markets on the one hand, and financial and spot markets on the otherhand. We propose a competitive equilibrium concept for each market structure. We show that the equilibrium with contin-gent markets is efficient in an appropriate sense, while the equilibrium with financial and spot markets is inefficient, provided that assumptions on preferences more general than those usually considered in the literature hold.
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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 2006096.
Date of creation: 00 Oct 2006
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hidden action; enforcement; constrained efficiency;
Other versions of this item:
- Luca, PANACCIONE, 2006. "Inefficiency of competitive equilibrium with hidden action and financial markets," Discussion Papers (ECON - DÃ©partement des Sciences Economiques) 2006049, Université catholique de Louvain, Département des Sciences Economiques.
- D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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