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Efficiency and imperfect competition with incomplete markets

  • Giraud, Gael
  • Stahn, Hubert

We deal with the problem of providing incentives for the implementation of constrained optimal outcomes in a two-period economy with incomplete markets. Allowing both for price observation, price-manipulation and a minimal amount of coordination enables to recover (second-best) efficiency at equilibrium, therefore to do better than perfect competition. To make this point, we construct a feasible price-quantity mechanism for two-period economies. In the absence of monitoring between the first and the second period, one gets a full implementation of the (typically inefficient) GEI equilibria via Nash equilibria. By contrast, when actions are observed between the two periods, a large subset of feasible and individually rational allocations can be obtained as strategic equilibria. Furthermore, the correspondence of individually rational, second-best efficient outcomes is implemented via undominated Nash equilibria (NE).

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Article provided by Elsevier in its journal Journal of Mathematical Economics.

Volume (Year): 39 (2003)
Issue (Month): 5-6 (July)
Pages: 559-583

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Handle: RePEc:eee:mateco:v:39:y:2003:i:5-6:p:559-583
Contact details of provider: Web page: http://www.elsevier.com/locate/jmateco

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