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Implementing Arrow-Debreu Equilibria by Trading Infinitely-Lived Securities

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Author Info
Kevin X. D. Huang (University of Utah)
Jan Werner (University of Minnesota)

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Abstract

We study the question of implementing Arrow-Debreu equilibrium allocations in infinite-time economy under uncertainty by sequential trading of infinitely-lived securities. The crucial aspect of implementation is the choice of feasibility constraints on agents' portfolio strategies. The main difficulty lies in the possibility of price bubbles in security markets. We derive an exact relation between Arrow-Debreu equilibrium allocations and sequential equilibrium allocations in security markets under two portfolio feasibility constraints: the wealth constraint, and the bounded borrowing constraint. We show that sequential equilibria with price bubbles correspond to Arrow-Debreu equilibria with income transfers.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1708.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:1708

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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. Peleg, Bezalel & Yaari, Menahem E, 1970. "Markets with Countably Many Commodities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 11(3), pages 369-77, October. [Downloadable!] (restricted)
  2. Tirole, Jean, 1982. "On the Possibility of Speculation under Rational Expectations," Econometrica, Econometric Society, vol. 50(5), pages 1163-81, September. [Downloadable!] (restricted)
  3. Montrucchio, Luigi & Privileggi, Fabio, 1999. "On Fragility of Bubbles in Equilibrium Asset Pricing Models of Lucas-Type," P.O.L.I.S. department's Working Papers 5, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
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  4. David K. Levine & William Zame, 1996. "Debt Constraints and Equilibrium in Infinite Horizon Economies with Incomplete Markets," Levine's Working Paper Archive 1954, David K. Levine. [Downloadable!]
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  5. Duffie, J Darrell & Huang, Chi-fu, 1985. "Implementing Arrow-Debreu Equilibria by Continuous Trading of Few Long-lived Securities," Econometrica, Econometric Society, vol. 53(6), pages 1337-56, November. [Downloadable!] (restricted)
  6. Manuel S. Santos & Michael Woodford, 1997. "Rational Asset Pricing Bubbles," Econometrica, Econometric Society, vol. 65(1), pages 19-58, January.
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  7. Florenzano, Monique & Gourdel, Pascal, 1993. "Incomplete markets in infinite horizon : debt constraints versus node prices," CEPREMAP Working Papers (Couverture Orange) 9329, CEPREMAP.
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  8. Magill, Michael & Quinzii, Martine, 1994. "Infinite Horizon Incomplete Markets," Econometrica, Econometric Society, vol. 62(4), pages 853-80, July. [Downloadable!] (restricted)
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  9. Magill, Michael & Quinzii, Martine, 1996. "Incomplete markets over an infinite horizon: Long-lived securities and speculative bubbles," Journal of Mathematical Economics, Elsevier, vol. 26(1), pages 133-170. [Downloadable!] (restricted)
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  10. Aliprantis, Charalambos D & Brown, Donald J & Burkinshaw, Owen, 1987. "Edgeworth Equilibria," Econometrica, Econometric Society, vol. 55(5), pages 1109-37, September. [Downloadable!] (restricted)
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  1. G. Bloise & J.H. Dreze & H.M. Polemarchakis, 2002. "Money and Indeterminacy Over an Infinite Horizon," Working Papers 2002-12, Brown University, Department of Economics. [Downloadable!]
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  2. Patarick Leoni, 2006. "Market Power, Survival and Accuracy of Predictions in Financial Markets," Economics, Finance and Accounting Department Working Paper Series n1701106, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth. [Downloadable!]
  3. Marco Bassetto & Thomas J. Sargent, 2005. "Politics and efficiency of separating capital and ordinary Government budgets," Working Paper Series WP-05-07, Federal Reserve Bank of Chicago. [Downloadable!]
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