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Nonexistence of Constrained Efficient Equilibria when Markets are Incomplete

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Author Info

  • Egbert Dierker

    (University of Vienna)

  • Hildegard Dierker

    (University of Vienna)

  • Birgit Grodal

    (University of Copenhagen)

Abstract

We consider economies with incomplete markets, production, an a given distribution of initial endowments. The main purpose of the paper is to present a robust example of an economy with only one firm and one good per state in which no production decision entails a constrained efficient outcome. In particular, the unique Drèze equilibrium is dominated by every other production decision.

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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 2000-07.

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Length: 15 pages
Date of creation: Oct 2000
Date of revision:
Publication status: Published in: Econometrica. May 2002; 70(3): 1245-51
Handle: RePEc:kud:kuieci:2000-07

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Keywords: incomplete markets with production; constraint efficiency; Drèze equilibria;

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References

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  1. Geanakoplos, J. & Magill, M. & Quinzii, M. & Dreze, J., . "Generic inefficiency of stock market equilibrium when markets are incomplete," CORE Discussion Papers RP -916, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Guesnerie, Roger, 1975. "Pareto Optimality in Non-Convex Economies," Econometrica, Econometric Society, vol. 43(1), pages 1-29, January.
  3. Dierker, E. & Dierker, H. & Grobal, B., 1999. "Incomplete Markets and the Firm," Papers 99-03, Carleton - School of Public Administration.
  4. Kenneth J. Arrow, 1950. "A Difficulty in the Concept of Social Welfare," Journal of Political Economy, University of Chicago Press, vol. 58, pages 328.
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Citations

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Cited by:
  1. Tarun Sabarwal, 2004. "Value Maximization As An Ex Post Consistent Firm Objective When Markets are Incomplete," GE, Growth, Math methods 0406002, EconWPA, revised 19 Jul 2004.
  2. CRES, Hervé & TVEDE, Mich, 2004. "The Dreze and Grossman-Hart criteria for production in incomplete markets: Voting foundations and compared political stability," Les Cahiers de Recherche 794, HEC Paris.
  3. Stefano Demichelis & Klaus Ritzberger, 2011. "A general equilibrium analysis of corporate control and the stock market," Economic Theory, Springer, vol. 46(2), pages 221-254, February.
  4. Alberto Bisin & Piero Gottardi & Guido Ruta, 2010. "Equilibrium Corporate Finance," Economics Working Papers ECO2010/01, European University Institute.
  5. Britz Volker & Herings Jean-Jacques & Predtetchinski Arkadi, 2010. "Theory of the Firm: Bargaining and Competitive Equilibrium," Research Memorandum 057, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  6. Tarun Sabarwal, 2004. "A Consistent Firm Objective When Markets are Incomplete: Profit Maximization," Econometric Society 2004 North American Summer Meetings 141, Econometric Society.
  7. Egbert Dierker & Hildegard Dierker, 2010. "Drèze equilibria and welfare maxima," Economic Theory, Springer, vol. 45(1), pages 55-63, October.
  8. Bisin, Alberto; & Gottardi, Piero; & Ruta, Guido, 2014. "Equilibrium corporate finance and intermediation," Economics Working Papers ECO2014/09, European University Institute.
  9. Egbert Dierker & Hildegard Dierker & Birgit Grodal, 2002. "Are Incomlete Markets Able to Achieve Minimal Efficiency?," Vienna Economics Papers 0212, University of Vienna, Department of Economics.
  10. Ritzberger, Klaus, 2005. "Shareholder voting," Economics Letters, Elsevier, vol. 86(1), pages 69-72, January.
  11. Volker Britz & P. Herings & Arkadi Predtetchinski, 2013. "A bargaining theory of the firm," Economic Theory, Springer, vol. 54(1), pages 45-75, September.
  12. Bejan, Camelia, 2008. "Production and financial decisions under uncertainty," MPRA Paper 11033, University Library of Munich, Germany.

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