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Nonexistence of Constrained Efficient Equilibria When Markets are Incomplete


  • Egbert Dierker

    () (Dept. of Economics, University of Colorado at Denver, U.S.A.)

  • Hildegard Dierker

    () (Institut für Wirtschaftswissenschaften, Universität Wien, Austria)

  • Birgit Grodal

    () (Centre of Industrial Economics and Økonomisk Institut, Københavns Universitet, Denmark)


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

  • Egbert Dierker & Hildegard Dierker & Birgit Grodal, 2002. "Nonexistence of Constrained Efficient Equilibria When Markets are Incomplete," Econometrica, Econometric Society, vol. 70(3), pages 1245-1251, May.
  • Handle: RePEc:ecm:emetrp:v:70:y:2002:i:3:p:1245-1251

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    References listed on IDEAS

    1. Egbert Dierker & Hildegard Dierker & Birgit Grodal, 1999. "Incomplete Markets and the Firm," Discussion Papers 99-03, University of Copenhagen. Department of Economics.
    2. Kenneth J. Arrow, 1950. "A Difficulty in the Concept of Social Welfare," Journal of Political Economy, University of Chicago Press, vol. 58, pages 328-328.
    3. Guesnerie, Roger, 1975. "Pareto Optimality in Non-Convex Economies," Econometrica, Econometric Society, vol. 43(1), pages 1-29, January.
    4. Geanakoplos, J. & Magill, M. & Quinzii, M. & Dreze, J., 1990. "Generic inefficiency of stock market equilibrium when markets are incomplete," Journal of Mathematical Economics, Elsevier, vol. 19(1-2), pages 113-151.
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    Cited by:

    1. Stefano Demichelis & Klaus Ritzberger, 2011. "A general equilibrium analysis of corporate control and the stock market," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 46(2), pages 221-254, February.
    2. Bejan, Camelia, 2008. "Production and financial decisions under uncertainty," MPRA Paper 11033, University Library of Munich, Germany.
    3. Tarun Sabarwal, 2004. "A Consistent Firm Objective When Markets are Incomplete: Profit Maximization," Econometric Society 2004 North American Summer Meetings 141, Econometric Society.
    4. Bisin, Alberto; & Gottardi, Piero; & Ruta, Guido, 2014. "Equilibrium corporate finance and intermediation," Economics Working Papers ECO2014/09, European University Institute.
    5. Egbert Dierker & Hildegard Dierker, 2010. "Drèze equilibria and welfare maxima," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 45(1), pages 55-63, October.
    6. Sabarwal Tarun, 2007. "Value Maximization as an Ex-Post Consistent Firm Objective When Markets are Incomplete," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-21, January.
    7. Guido Ruta & Piero Gottardi, 2009. "Equilibrium corporate finance," 2009 Meeting Papers 149, Society for Economic Dynamics.
    8. Volker Britz & P. Herings & Arkadi Predtetchinski, 2013. "A bargaining theory of the firm," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 54(1), pages 45-75, September.
    9. Egbert Dierker & Hildegard Dierker & Birgit Grodal, 2005. "Are incomplete markets able to achieve minimal efficiency?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 25(1), pages 75-87, January.
    10. 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.
    11. 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).
    12. repec:spr:etbull:v:3:y:2015:i:2:d:10.1007_s40505-015-0073-9 is not listed on IDEAS
    13. repec:spr:joecth:v:64:y:2017:i:1:d:10.1007_s00199-016-0968-1 is not listed on IDEAS
    14. Ritzberger, Klaus, 2005. "Shareholder voting," Economics Letters, Elsevier, vol. 86(1), pages 69-72, January.

    More about this item

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • G1 - Financial Economics - - General Financial Markets


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