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Constrained Inefficiency In Gei: A Geometric Argument

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Mario Tirelli

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Abstract

In this paper we use global analysis to study the welfare properties of general equilibrium economies with incomplete markets (GEI). Our main result is to show that constrained Pareto optimal equilibria are contained in a submanifold of the equilibrium set. This result is explicitly derived for economies with real assets and xed aggregate resources, of which real numeraire assets are a special case. As a by product of our analysis, we propose an original global parametrization of the equilibrium set that generalizes to incomplete markets the classical one, rst, proposed by Lange (1942).

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Paper provided by Department of Economics - University Roma Tre in its series Departmental Working Papers of Economics - University 'Roma Tre' with number 0086.

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Length: 26
Date of creation: Jan 2008
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Handle: RePEc:rtr:wpaper:0086

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Related research
Keywords: General equilibrium; incomplete markets; optimality; global analysis;

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Find related papers by JEL classification:
D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
D62 - Microeconomics - - Welfare Economics - - - Externalities

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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. Grossman, Sanford J & Hart, Oliver D, 1979. "A Theory of Competitive Equilibrium in Stock Market Economies," Econometrica, Econometric Society, vol. 47(2), pages 293-329, March. [Downloadable!] (restricted)
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  2. Grossman, Sanford J., 1977. "A characterization of the optimality of equilibrium in incomplete markets," Journal of Economic Theory, Elsevier, vol. 15(1), pages 1-15, June. [Downloadable!] (restricted)
  3. Geanakoplos, John, 1990. "An introduction to general equilibrium with incomplete asset markets," Journal of Mathematical Economics, Elsevier, vol. 19(1-2), pages 1-38. [Downloadable!] (restricted)
  4. John Geanakoplos & Michael Magill & Martine Quinzii & J. Dreze, 1988. "Generic Inefficiency of Stock Market Equilibrium When Markets Are Incomplete," Cowles Foundation Discussion Papers 863, Cowles Foundation, Yale University. [Downloadable!]
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  5. Hart, Oliver D., 1975. "On the optimality of equilibrium when the market structure is incomplete," Journal of Economic Theory, Elsevier, vol. 11(3), pages 418-443, December. [Downloadable!] (restricted)
  6. Werner, Jan, 1991. "On Constrained Optimal Allocations with Incomplete Markets," Economic Theory, Springer, vol. 1(2), pages 205-09, April.
  7. Zhou, Yuqing, 1997. "The structure of the pseudo-equilibrium manifold in economies with incomplete markets," Journal of Mathematical Economics, Elsevier, vol. 27(1), pages 91-111, February. [Downloadable!] (restricted)
  8. Magill, Michael & Shafer, Wayne, 1991. "Incomplete markets," Handbook of Mathematical Economics, in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 30, pages 1523-1614 Elsevier. [Downloadable!] (restricted)
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  1. Mario Tirelli & Sergio Turner, 2008. "A social welfare function characterizing competitive equilibria of incomplete financial markets," Working Papers 2008-10, Brown University, Department of Economics. [Downloadable!]
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