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General equilibrium with endogenous securities and moral hazard


  • Luis Braido



This paper studies a class of general equilibrium economies in which the individuals’ endowments depend on privately observed effort choices and the financial markets are endogenous. The environment is modeled as a two-stage game. Individuals first make strategic financial-innovation decisions. They then act in a Radner-type economy with the previously designed securities. Consumption goods, portfolios, and effort levels are chosen competitively (i.e., taking prices as given). An equilibrium concept is adapted for these moral hazard economies and its existence is proven. It is shown through an example how incentive motives might lead to the endogenous emergence of financial incompleteness. Copyright Springer-Verlag Berlin/Heidelberg 2005

Suggested Citation

  • Luis Braido, 2005. "General equilibrium with endogenous securities and moral hazard," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(1), pages 85-101, July.
  • Handle: RePEc:spr:joecth:v:26:y:2005:i:1:p:85-101 DOI: 10.1007/s00199-004-0492-6

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    References listed on IDEAS

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    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Braido, Luis H.B., 2009. "Multiproduct price competition with heterogeneous consumers and nonconvex costs," Journal of Mathematical Economics, Elsevier, vol. 45(9-10), pages 526-534, September.
    2. Michail Anthropelos & Constantinos Kardaras, 2014. "Equilibrium in risk-sharing games," Papers 1412.4208,, revised Jul 2016.
    3. Faias, Marta, 2004. "General equilibrium and endogenous creation of asset markets," FEUNL Working Paper Series wp454, Universidade Nova de Lisboa, Faculdade de Economia.
    4. repec:spr:finsto:v:21:y:2017:i:3:d:10.1007_s00780-017-0323-9 is not listed on IDEAS
    5. Marta Faias, 2008. "Approximate equilibrium in pure strategies for a two-stage game of asset creation," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 31(2), pages 117-136, November.

    More about this item


    General equilibrium; Moral hazard; Endogenous incomplete markets; Non-exclusive securities.;

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies


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