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Pareto improving price regulation when the asset market is incomplete

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Author Info
Herings, P.J.J.
Polemarchakis, H.M. (Tilburg University, Center for Economic Research)

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Abstract

When the asset market is incomplete, competitive equilibria are constrained suboptimal, which provides a scope for pareto improving interventions. Price regulation can be such a pareto improving policy, even when the welfare effects of rationing are taken into account. An appealing aspect of price regulation is that it that it operates anonymously on market variables. Fix - price equilibria exist under weak assumptions. Such equilibria permit a competitive analysis of an economy with an incomplete asset market that is out of equilibrium. Arbitrage opportunities may arise: with three or more assets actively traded, an individual may hold an arbitrage portfolio at equilibrium. The local existence of fix - price equilibrium for prices that are almost competitive may fail for robust examples. Under necessary and sufficient conditions for the local existence of fix - price equilibria, pareto improving price regulation is generically possible.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 30.

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Date of creation: 1999
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Handle: RePEc:dgr:kubcen:199930

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Related research
Keywords: Pareto improvement;

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Find related papers by JEL classification:
D45 - Microeconomics - - Market Structure and Pricing - - - Rationing; Licensing
D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
D60 - Microeconomics - - Welfare Economics - - - General

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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.:
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  4. Younes, Y, 1975. "On the Role of Money in the Process of Exchange and the Existence of a Non-Walrasian Equilibrium," Review of Economic Studies, Blackwell Publishing, vol. 42(4), pages 489-501, October. [Downloadable!] (restricted)
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  24. Kubler, F. & Chiappori, P. -A. & Ekeland, I. & Polemarchakis, H. M., 2002. "The Identification of Preferences from Equilibrium Prices under Uncertainty," Journal of Economic Theory, Elsevier, vol. 102(2), pages 403-420, February. [Downloadable!] (restricted)
    Other versions:
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Cited by:
(explanations, 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. Raymond Wladimir & Mohnen Pierre & Palm Franz & Schim van der Loeff Sybrand, 2009. "Innovative Sales, R&D and Total Innovation Expenditures: Panel Evidence on their Dynamics," Research Memoranda 028, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
    Other versions:
  2. Talman,Dolf & Laan,Gerard,van der & Herings,P. Jean-Jacques, 2001. "Quantity Constrained Equilibria," Research Memoranda 012, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
    Other versions:
  3. Herings, P.J.J. & Laan, G. van der & Talman, A.J.J., 2004. "Equilibria with coordination failures," Discussion Paper 107, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  4. CITANNA, Alessandro & POLEMARCHAKIS, Heracles M. & TIRELLI, M., 2000. "The Taxation of Trades in assets," Les Cahiers de Recherche 721, HEC Paris. [Downloadable!]
    Other versions:
  5. P. J. J. Herings & H. M. Polemarchakis, 2003. "Pareto Improving Price Regulation When the Asset Market is Incomplete," Discussion Papers 03-20, University of Copenhagen. Department of Economics. [Downloadable!]
    Other versions:
  6. Herings,P. Jean-Jacques & Konovalov,Alexander, 2002. "Constrained Suboptimality when Prices Are Non-competitive," Research Memoranda 012, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
    Other versions:
  7. Gaël Giraud, 2004. "Walrasian non-tâtonnement with incomplete and imperfect markets," Cahiers de la Maison des Sciences Economiques b04119, Université Panthéon-Sorbonne (Paris 1). [Downloadable!]
  8. Jacques H., DREZE & Jean-Jacques, HERINGS, 2007. "Kinky perceived demand curves and Keynes-Negishi equilibria," Discussion Papers (ECON - Département des Sciences Economiques) 2007037, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
    Other versions:
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