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Existence, Regularity, and Constrained Suboptimality of Competitive Allocations When the Asset Market Is Incomplete

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Author Info
John Geanakoplos () (Cowles Foundation, Yale University)
Heracles M. Polemarchakis
Abstract

Let assets be denominated in an a priori specified numeraire. Whether or not the asset is complete, a competitive equilibrium exists as long as arbitrage is possible when assets are free. Generically, the set of competitive equilibria is finite, and the equilibrium prices and allocations in the commodity spot markets are uniquely determined by the asset allocation is generically constrained suboptimal: there exists an arbitrarily small reallocation of the existing assets, which leads to a Pareto improvement in welfare when prices and allocations in the commodity spot markets adjust to maintain equilibrium.

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Paper provided by Cowles Foundation, Yale University in its series Cowles Foundation Discussion Papers with number 764.

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Length: 62 pages
Date of creation: Aug 1985
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Publication status: Published in W. Heller, R. Starr and D. Starrett eds., Uncertainty, Information and Communication, Essays in Honor of Kenneth J. Arrow, Vol. III, Cambridge University Press, 1986, pp. 65-95
Handle: RePEc:cwl:cwldpp:764

Note: CFP 652.
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Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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Related research
Keywords: Asset markets; competitive equilibria; incomplete asset markets;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Grossman, Sanford J., 1977. "A characterization of the optimality of equilibrium in incomplete markets," Journal of Economic Theory, Elsevier, vol. 15(1), pages 1-15, June. [Downloadable!] (restricted)
  2. John Geanakoplos & Andreu Mas-Colell, 1985. "Real Indeterminacy with Financial Assets," Cowles Foundation Discussion Papers 770R, Cowles Foundation, Yale University, revised Oct 1985. [Downloadable!]
  3. Debreu, Gerard, 1970. "Economies with a Finite Set of Equilibria," Econometrica, Econometric Society, vol. 38(3), pages 387-92, May. [Downloadable!] (restricted)
  4. Hart, Oliver D., 1975. "On the optimality of equilibrium when the market structure is incomplete," Journal of Economic Theory, Elsevier, vol. 11(3), pages 418-443, December. [Downloadable!] (restricted)
  5. Balasko, Yves, 1975. "Some results on uniqueness and on stability of equilibrium in general equilibrium theory," Journal of Mathematical Economics, Elsevier, vol. 2(2), pages 95-118. [Downloadable!] (restricted)
  6. Werner, Jan, 1985. "Equilibrium in economies with incomplete financial markets," Journal of Economic Theory, Elsevier, vol. 36(1), pages 110-119, June. [Downloadable!] (restricted)
  7. Debreu, Gerard, 1972. "Smooth Preferences," Econometrica, Econometric Society, vol. 40(4), pages 603-15, July. [Downloadable!] (restricted)
  8. Stiglitz, Joseph E, 1982. "The Inefficiency of the Stock Market Equilibrium," Review of Economic Studies, Blackwell Publishing, vol. 49(2), pages 241-61, April. [Downloadable!] (restricted)
  9. David Cass, 2006. "Competitive Equilibrium with Incomplete Financial Markets," PIER Working Paper Archive 06-010, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
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  10. Pradeep Dubey, 1978. "Finiteness and Inefficiency of Nash Equilibria," Cowles Foundation Discussion Papers 508R, Cowles Foundation, Yale University. [Downloadable!]
  11. Smale, S., 1974. "Global analysis and economics III : Pareto Optima and price equilibria," Journal of Mathematical Economics, Elsevier, vol. 1(2), pages 107-117, August. [Downloadable!] (restricted)
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