Inefficiency of competitive equilibrium with hidden action and financial markets
In this paper, we study a pure exchange economy with idiosyncratic uncertainty, hidden action and multiple consumption goods.We consider two different market structures: contingent markets on the one hand, and financial and spot markets on the otherhand. We propose a competitive equilibrium concept for each market structure. We show that the equilibrium with contin-gent markets is efficient in an appropriate sense, while the equilibrium with financial and spot markets is inefficient, provided that assumptions on preferences more general than those usually considered in the literature hold.
|Date of creation:||00 Oct 2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Fax: +32 10474304
Web page: http://www.uclouvain.be/core
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kocherlakota, Narayana R., 1998. "The effects of moral hazard on asset prices when financial markets are complete," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 39-56, February.
- Richard Arnott & Bruce Greenwald & Joseph E. Stiglitz, 1993.
"Information and Economic Efficiency,"
NBER Working Papers
4533, National Bureau of Economic Research, Inc.
- Helpman, Elhanan & Laffont, Jean-Jacques, 1975. "On moral hazard in general equilibrium theory," Journal of Economic Theory, Elsevier, vol. 10(1), pages 8-23, February.
- Malinvaud, E., 1972. "The allocation of individual risks in large markets," Journal of Economic Theory, Elsevier, vol. 4(2), pages 312-328, April.
- Richard J. Arnott & Joseph E. Stiglitz, 1983.
"Moral Hazard and Optimal Commodity Taxation,"
NBER Working Papers
1154, National Bureau of Economic Research, Inc.
- Greenwald, Bruce C & Stiglitz, Joseph E, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 229-64, May.
- Edward C Prescott & Robert M Townsend, 2010.
"Pareto Optima and Competitive Equilibria With Adverse Selection and Moral Hazard,"
Levine's Working Paper Archive
2069, David K. Levine.
- Prescott, Edward C & Townsend, Robert M, 1984. "Pareto Optima and Competitive Equilibria with Adverse Selection and Moral Hazard," Econometrica, Econometric Society, vol. 52(1), pages 21-45, January.
- Marcos B. Lisboa, 2001. "Moral hazard and general equilibrium in large economies," Economic Theory, Springer, vol. 18(3), pages 555-575.
When requesting a correction, please mention this item's handle: RePEc:cor:louvco:2006096. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alain GILLIS)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.