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Core concepts for incomplete market economies

  • Habis, Helga
  • Herings, P. Jean-Jacques

We examine the notion of the core when cooperation takes place in a setting with time and uncertainty. We do so in a two-period general equilibrium setting with incomplete markets. Market incompleteness implies that players cannot make all possible binding commitments regarding their actions at different date-events. We unify various treatments of dynamic core concepts existing in the literature. This results in definitions of the Classical Core, the Segregated Core, the Two-stage Core, the Strong Sequential Core, and the Weak Sequential Core. Except for the Classical Core, all these concepts can be defined by requiring the absence of blocking in period 0 and at any date-event in period 1. The concepts only differ with respect to the notion of blocking in period 0. To evaluate these concepts, we study three market structures in detail: strongly complete markets, incomplete markets in finance economies, and incomplete markets in settings with multiple commodities. Even when markets are strongly complete, the Classical Core is argued not to be an appropriate concept. For the general case of incomplete markets, the Weak Sequential Core is the only concept that does not suffer from major defects.

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

Volume (Year): 47 (2011)
Issue (Month): 4-5 ()
Pages: 595-609

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Handle: RePEc:eee:mateco:v:47:y:2011:i:4:p:595-609
Contact details of provider: Web page: http://www.elsevier.com/locate/jmateco

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  1. Kranich,Laurence & Peree,Andrea & Peters,Hans, 2001. "Core Concepts for Dynamic TU Games," Research Memorandum 013, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  2. Predtetchinski,Arkadi & Herings,Jean-Jacques, 2001. "The Strong Sequential Core for Two-period Economies," Research Memorandum 005, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  3. Herings, P.J.J. & Polemarchakis, H.M., 1999. "Pareto Improving Price Regulation when the Asset Market is Incomplete," Discussion Paper 1999-30, Tilburg University, Center for Economic Research.
  4. 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.
  5. P. Herings & A. Predtetchinski & A. Perea, 2006. "The Weak Sequential Core for Two-Period Economies," International Journal of Game Theory, Springer, vol. 34(1), pages 55-65, April.
  6. Repullo, Rafael, 1988. "The Core of an Economy with Transaction Costs," Review of Economic Studies, Wiley Blackwell, vol. 55(3), pages 447-58, July.
  7. 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.
  8. Repullo, Rafael, 1988. "A new characterization of the efficiency of equilibrium with incomplete markets," Journal of Economic Theory, Elsevier, vol. 44(2), pages 217-230, April.
  9. Becker, Robert A & Chakrabarti, Subir K, 1995. "The Recursive Core," Econometrica, Econometric Society, vol. 63(2), pages 401-23, March.
  10. Atsushi Kajii & Antonio Villanacci & Alessandro Citanna, 1998. "Constrained suboptimality in incomplete markets: a general approach and two applications," Economic Theory, Springer, vol. 11(3), pages 495-521.
  11. Gale, Douglas, 1978. "The core of a monetary economy without trust," Journal of Economic Theory, Elsevier, vol. 19(2), pages 456-491, December.
  12. Roth, Alvin E. & Postlewaite, Andrew, 1977. "Weak versus strong domination in a market with indivisible goods," Journal of Mathematical Economics, Elsevier, vol. 4(2), pages 131-137, August.
  13. Leonidas C. Koutsougeras, 1998. "A two-stage core with applications to asset market and differential information economies," Economic Theory, Springer, vol. 11(3), pages 563-584.
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