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The relevance of extrinsic uncertainty

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Author Info
POLEMARCHAKIS, Heracles M.
VENTURA, Luigi

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Abstract

Extrinsic uncertainty is effective at a competitive equilibrium. This is generically the case if commodities are exchanged indirectly, through the exchange of assets, spot markets are inoperative, while the asset market is incomplete.

The structure of payoffs of assets may allow for non - trivial allocations invariant with respect to the extrinsic uncertainty, and the economy with a complete asset market may well have a globally unique competitive equilibrium.

Competitive equilibrium allocations are constrained pareto optimal : effective extrinsic uncertainty is not disadvantageous, given the restricted set of assets available.

Inoperative spot markets have a natural interpretation in economies with multiple periods: assets cannot be retraded.

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Publisher Info
Paper provided by HEC Paris in its series Les Cahiers de Recherche with number 691.

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Length: 12 pages
Date of creation: 01 Jan 2000
Date of revision:
Handle: RePEc:ebg:heccah:0691

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Related research
Keywords: Extrinsic uncertainty; competitive equilibrium;

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Find related papers by JEL classification:
D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
D60 - Microeconomics - - Welfare Economics - - - General
D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

References listed on IDEAS
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  1. Polemarchakis, Heraklis M, 1979. "Equity, Efficiency, and Advantageous Randomness," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 465-70, August. [Downloadable!] (restricted)
  2. VENTURAÊ, Luigi, 1995. "Can Irrelevant Product Differentiation Matter ?," CORE Discussion Papers 1995077, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Suda, Shinichi & Tallon, Jean-Marc & Villanacci, Antonio, 1992. "Real Indeterminacy of Equilibria in a Sunspot Economy with Inside Money," Economic Theory, Springer, vol. 2(3), pages 309-19, July.
  4. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April. [Downloadable!] (restricted)
  5. Siconolfi, Paolo, 1991. "Sunspot equilibria and incomplete financial markets," Journal of Mathematical Economics, Elsevier, vol. 20(3), pages 327-339. [Downloadable!] (restricted)
  6. Polemarchakis, H. M. & Weiss, L., 1977. "On the desirability of a "totally random" monetary policy," Journal of Economic Theory, Elsevier, vol. 15(2), pages 345-350, August. [Downloadable!] (restricted)
  7. Thorsten Hens, 2000. "Do Sunspots Matter when Spot Market Equilibria Are Unique?," Econometrica, Econometric Society, vol. 68(2), pages 435-441, March.
  8. Pietra, Tito, 1991. "Existence of sunspot equilibrium and absence of non-sunspot equilibria in a financial economy," Journal of Economic Theory, Elsevier, vol. 53(2), pages 439-451, April. [Downloadable!] (restricted)
  9. Balasko, Yves & Cass, David, 1989. "The Structure of Financial Equilibrium with Exogenous Yields: The Case of Incomplete Markets," Econometrica, Econometric Society, vol. 57(1), pages 135-62, January. [Downloadable!] (restricted)
  10. Pietra Tito, 1993. "Sunspot Equilibria and Efficiency in Economies with Incomplete Financial Markets: A Remark," Journal of Economic Theory, Elsevier, vol. 60(1), pages 181-190, June. [Downloadable!] (restricted)
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