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Generic inefficiency of equilibria in the general equilibrium model with incomplete asset markets and infinite time

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  • Felix Kubler
  • Karl Schmedders

Abstract

We consider a Lucas asset-pricing model with heterogeneous agents, exogenous labor income, and a finite number of exogenous shocks. Although agents are infinitely lived, endowments and dividends are time-invariant functions of the exogenous shock alone and are thus restricted to lie in a finite-dimensional space; genericity analysis can be conducted on sets of zero Lebesgue measure. When financial markets are incomplete, that is, there are fewer financial securities than shocks, we show that generically in individual endowments all competitive equilibria are Pareto inefficient. Copyright Springer-Verlag Berlin Heidelberg 2003

Suggested Citation

  • Felix Kubler & Karl Schmedders, 2003. "Generic inefficiency of equilibria in the general equilibrium model with incomplete asset markets and infinite time," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 22(1), pages 1-15, August.
    • Handle: RePEc:spr:joecth:v:22:y:2003:i:1:p:1-15
    DOI: 10.1007/s00199-002-0272-0
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    Citations

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    Cited by:

    1. Felix Kubler & Karl Schmedders, 2010. "Non-parametric counterfactual analysis in dynamic general equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 45(1), pages 181-200, October.
    2. Tom Krebs, 2002. "Non-Existence of Recursive Equilibria on Compact State Spaces When Markets are Incomplete," Working Papers 2002-17, Brown University, Department of Economics.
    3. Chiaki Hara, 2009. "Effectively Complete Asset Markets with Multiple Goods and over Multiple Periods," KIER Working Papers 685, Kyoto University, Institute of Economic Research.
    4. Hervé Crès & Tobias Markeprand & Mich Tvede, 2016. "Incomplete financial markets and jumps in asset prices," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(1), pages 201-219, June.
    5. Krebs, Tom, 2004. "Non-existence of recursive equilibria on compact state spaces when markets are incomplete," Journal of Economic Theory, Elsevier, vol. 115(1), pages 134-150, March.

    More about this item

    Keywords

    Keywords and Phrases: Incomplete markets; Heterogeneous agents; Inefficient equilibria.; JEL Classification Numbers: C63; D50; D52.;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General

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