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A re-examination of constrained Pareto inefficiency in economies with incomplete markets

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  • Mendolicchio, C.
  • Pietra, T.

Abstract

We establish that, when the number of agents is sufficiently large, but finite, there are open sets of economies with constrained Pareto inefficient equilibria and provide a simple sufficient condition for constrained inefficiency. We also show that there are open sets of economies with constrained efficient equilibria. Hence, for these economies, neither constrained efficiency, nor its lack, are generic properties. However, constrained inefficiency is a pervasive feature: for each economy with preferences satisfying a mild restriction, there are open sets of endowments such that their equilibrium allocations are constrained inefficient.

Suggested Citation

  • Mendolicchio, C. & Pietra, T., 2019. "A re-examination of constrained Pareto inefficiency in economies with incomplete markets," Journal of Mathematical Economics, Elsevier, vol. 80(C), pages 39-55.
  • Handle: RePEc:eee:mateco:v:80:y:2019:i:c:p:39-55
    DOI: 10.1016/j.jmateco.2018.10.006
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    Cited by:

    1. Mendolicchio, Concetta & Pietra, Tito, 2018. "Full and constrained pareto optimality with incomplete financial markets," IAB Discussion Paper 201822, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

    More about this item

    Keywords

    GEI; Constrained Pareto efficiency; Numeraire assets; Pecuniary externalities;

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets

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