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Pareto Improving Price Regulation When the Asset Market is Incomplete

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Author Info
P. J. J. Herings (Universiteit Maastricht)
H. M. Polemarchakis (Brown University)

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Abstract

Incomplete asset markets cause competitive equilibria to be constrained suboptimal and provides scope for Pareto improving interventions. In this paper, we examine how intervention in prices in asset or spot commodity markets serve this purpose. We show that, if ?x-price equilibria behave sufficiently regularly near Walrasian equilibria, Pareto improving price regulation is generically possible. An advantage of price regulation, contrasted with interventions in individuals’ asset portfolios, is that it operates anonymously, on market variables.

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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 03-20.

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Length: 20 pages
Date of creation: May 2003
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Handle: RePEc:kud:kuiedp:0320

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Related research
Keywords: incomplete asset market; ?x-price equilibria; 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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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. Herings, P. J. J. & Polemarchakis, H., 2002. "Equilibrium and arbitrage in incomplete asset markets with fixed prices," Journal of Mathematical Economics, Elsevier, vol. 37(2), pages 133-155, April. [Downloadable!] (restricted)
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  2. Kajii Atsushi, 1994. "Anonymity and Optimality of Competitive Equilibria when Markets Are Incomplete," Journal of Economic Theory, Elsevier, vol. 64(1), pages 115-129, October. [Downloadable!] (restricted)
  3. Benassy, Jean-Pascal, 1975. "Neo-Keynesian Disequilibrium Theory in a Monetary Economy," Review of Economic Studies, Blackwell Publishing, vol. 42(4), pages 503-23, October. [Downloadable!] (restricted)
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  4. Samuelson, Paul A, 1972. "The Consumer Does Benefit From Feasible Price Stability," The Quarterly Journal of Economics, MIT Press, vol. 86(3), pages 476-93, August. [Downloadable!] (restricted)
  5. P. Herings & Herakles Polemarchakis, 2005. "Pareto improving price regulation when the asset market is incomplete," Economic Theory, Springer, vol. 25(1), pages 135-154, 01. [Downloadable!] (restricted)
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  6. Newbery, David M G & Stiglitz, Joseph E, 1984. "Pareto Inferior Trade," Review of Economic Studies, Blackwell Publishing, vol. 51(1), pages 1-12, January. [Downloadable!] (restricted)
  7. 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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  11. Laroque, Guy, 1981. "On the Local Uniqueness of the Fixed Price Equilibria," Review of Economic Studies, Blackwell Publishing, vol. 48(1), pages 113-29, January. [Downloadable!] (restricted)
  12. Waugh, Frederick V, 1972. "The Consumer Does Benefit From Feasible Price Stability: A Comment," The Quarterly Journal of Economics, MIT Press, vol. 86(3), pages 499, August.
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  16. Polemarchakis, H M, 1979. "Incomplete Markets, Price Regulation, and Welfare," American Economic Review, American Economic Association, vol. 69(4), pages 662-69, September. [Downloadable!] (restricted)
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  18. Geanakoplos, J. D. & Polemarchakis, H. M., 1990. "Observability and optimality," Journal of Mathematical Economics, Elsevier, vol. 19(1-2), pages 153-165. [Downloadable!] (restricted)
  19. Madden, Paul, 1982. "Catastrophic Walrasian Equilibrium from the Non-Walrasian Viewpoint: A Three-Good Macroeconomic Example," Review of Economic Studies, Blackwell Publishing, vol. 49(4), pages 661-67, October. [Downloadable!] (restricted)
  20. Debreu, Gerard, 1972. "Smooth Preferences," Econometrica, Econometric Society, vol. 40(4), pages 603-15, July. [Downloadable!] (restricted)
  21. CITANNA, Alessandro & POLEMARCHAKIS, Herakles M. & TIRELLI, Mario, 2001. "The taxation of trades in assets," CORE Discussion Papers 2001017, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
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  22. Barro, Robert J & Grossman, Herschel I, 1971. "A General Disequilibrium Model of Income and Employment," American Economic Review, American Economic Association, vol. 61(1), pages 82-93, March. [Downloadable!] (restricted)
  23. 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)
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  24. Nguyen, Trien T. & Whalley, John, 1986. "Equilibrium under price controls with endogenous transactions costs," Journal of Economic Theory, Elsevier, vol. 39(2), pages 290-300, August. [Downloadable!] (restricted)
  25. Herakles Polemarchakis, 2001. "The taxation of trades in assests," Working Papers 2001-21, Brown University, Department of Economics. [Downloadable!]
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  27. Dreze, Jacques H, 1975. "Existence of an Exchange Equilibrium under Price Rigidities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(2), pages 301-20, June. [Downloadable!] (restricted)
Full references

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(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. Herings,P. Jean-Jacques & Konovalov,Alexander, 2000. "Constrained Suboptimality when Prices Are Non-competitive," Research Memoranda 012, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
    Other versions:
  2. Herings, P.J.J. & Laan, G. van der & Talman, D., 2001. "Quantity constrained equilibria," Discussion Paper 93, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  3. Habis Helga & Herings P. Jean-Jacques, 2009. "Cooperation Under Incomplete Contracting," Research Memoranda 026, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
  4. 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!]
  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. 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:
  7. 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:
  8. 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!]
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  9. CITANNA, Alessandro & POLEMARCHAKIS, Heracles M. & TIRELLI, M., 2000. "The Taxation of Trades in assets," Les Cahiers de Recherche 721, HEC Paris. [Downloadable!]
    Other versions:
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