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Strategic Market Games with a Finite Horizon and Incomplete

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  • Gaël GIRAUD
  • Sonia WEYERS

Abstract

We study a strategic market game associated to an intertemporal economy with a finite horizon and incomplete markets. We demonstrate that generically, for any finite number of players, every sequentially strictly individually rational and default-free stream of allocations can be approximated by a full subgame-perfect equilibrium. As a consequence, imperfect competition may Pareto-dominate perfect competition when markets are incomplete. Moreover — and this contrasts with the main message conveyed by the market games literature — there exists a large open set of initial endowments for which full subgame-perfect equilibria do not converge to η- efficient allocations when the number of players tends to infinity. Finally, strategic speculative bubbles may survive at full subgame-perfect equilibria.

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Bibliographic Info

Paper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2003-04.

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Date of creation: 2003
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Handle: RePEc:ulp:sbbeta:2003-04

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Related research

Keywords: Market Games; Folk Theorem; Incomplete Markets; Bubbles.;

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  1. Giraud, Gael & Stahn, Hubert, 2003. "Efficiency and imperfect competition with incomplete markets," Journal of Mathematical Economics, Elsevier, vol. 39(5-6), pages 559-583, July.
  2. Kaneko, Mamoru, 1982. "Some remarks on the folk theorem in game theory," Mathematical Social Sciences, Elsevier, Elsevier, vol. 3(3), pages 281-290, October.
  3. Dubey, Pradeep & Kaneko, Mamoru, 1984. "Information patterns and Nash equilibria in extensive games: 1," Mathematical Social Sciences, Elsevier, Elsevier, vol. 8(2), pages 111-139, October.
  4. Sonia Weyers, 1999. "Uncertainty and insurance in strategic market games," Economic Theory, Springer, Springer, vol. 14(1), pages 181-201.
  5. Magill, Michael & Quinzii, Martine, 1994. "Infinite Horizon Incomplete Markets," Econometrica, Econometric Society, Econometric Society, vol. 62(4), pages 853-80, July.
  6. Abraham Neyman, 1999. "Cooperation in Repeated Games when the Number of Stages is Not Commonly Known," Econometrica, Econometric Society, Econometric Society, vol. 67(1), pages 45-64, January.
  7. Peck, James & Shell, Karl & Spear, Stephen E., 1992. "The market game: existence and structure of equilibrium," Journal of Mathematical Economics, Elsevier, vol. 21(3), pages 271-299.
  8. Shapley, Lloyd S & Shubik, Martin, 1977. "Trade Using One Commodity as a Means of Payment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(5), pages 937-68, October.
  9. Peck, James & Shell, Karl, 1991. "Market Uncertainty: Correlated and Sunspot Equilibria in Imperfectly Competitive Economies," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(5), pages 1011-29, October.
  10. John Geanakoplos & Andreu Mas-Colell, 1985. "Real Indeterminacy with Financial Assets," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 770R, Cowles Foundation for Research in Economics, Yale University, revised Oct 1985.
  11. Duffie, Darrell & Shafer, Wayne, 1985. "Equilibrium in incomplete markets: I : A basic model of generic existence," Journal of Mathematical Economics, Elsevier, vol. 14(3), pages 285-300, June.
  12. Atsushi Kajii & Antonio Villanacci & Alessandro Citanna, 1998. "Constrained suboptimality in incomplete markets: a general approach and two applications," Economic Theory, Springer, Springer, vol. 11(3), pages 495-521.
  13. David K Levine & William R Zame, 2000. "Risk Sharing and Market Incompleteness," Levine's Working Paper Archive 2080, David K. Levine.
  14. Postlewaite, A & Schmeidler, David, 1978. "Approximate Efficiency of Non-Walrasian Nash Equilibria," Econometrica, Econometric Society, Econometric Society, vol. 46(1), pages 127-35, January.
  15. Benoit, Jean-Pierre & Krishna, Vijay, 1985. "Finitely Repeated Games," Econometrica, Econometric Society, Econometric Society, vol. 53(4), pages 905-22, July.
  16. Magill, Michael & Shafer, Wayne, 1991. "Incomplete markets," Handbook of Mathematical Economics, Elsevier, in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 30, pages 1523-1614 Elsevier.
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