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Existence, Regularity, and Constrained Suboptimality of Competitive Allocations When the Asset Market Is Incomplete

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Let assets be denominated in an a priori specified numeraire. Whether or not the asset is complete, a competitive equilibrium exists as long as arbitrage is possible when assets are free. Generically, the set of competitive equilibria is finite, and the equilibrium prices and allocations in the commodity spot markets are uniquely determined by the asset allocation is generically constrained suboptimal: there exists an arbitrarily small reallocation of the existing assets, which leads to a Pareto improvement in welfare when prices and allocations in the commodity spot markets adjust to maintain equilibrium.

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  • John Geanakoplos & Heracles M. Polemarchakis, 1985. "Existence, Regularity, and Constrained Suboptimality of Competitive Allocations When the Asset Market Is Incomplete," Cowles Foundation Discussion Papers 764, Cowles Foundation for Research in Economics, Yale University.
  • Handle: RePEc:cwl:cwldpp:764
    Note: CFP 652.
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    1. 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.
    2. Geanakoplos, John & Mas-Colell, Andreu, 1989. "Real indeterminacy with financial assets," Journal of Economic Theory, Elsevier, vol. 47(1), pages 22-38, February.
    3. Debreu, Gerard, 1970. "Economies with a Finite Set of Equilibria," Econometrica, Econometric Society, vol. 38(3), pages 387-392, May.
    4. Debreu, Gerard, 1972. "Smooth Preferences," Econometrica, Econometric Society, vol. 40(4), pages 603-615, July.
    5. Radner, Roy, 1972. "Existence of Equilibrium of Plans, Prices, and Price Expectations in a Sequence of Markets," Econometrica, Econometric Society, vol. 40(2), pages 289-303, March.
    6. Balasko, Yves, 1975. "Some results on uniqueness and on stability of equilibrium in general equilibrium theory," Journal of Mathematical Economics, Elsevier, vol. 2(2), pages 95-118.
    7. Cass, David, 2006. "Competitive equilibrium with incomplete financial markets," Journal of Mathematical Economics, Elsevier, vol. 42(4-5), pages 384-405, August.
    8. Pradeep Dubey, 1978. "Finiteness and Inefficiency of Nash Equilibria," Cowles Foundation Discussion Papers 508R, Cowles Foundation for Research in Economics, Yale University.
    9. Joseph E. Stiglitz, 1982. "The Inefficiency of the Stock Market Equilibrium," Review of Economic Studies, Oxford University Press, vol. 49(2), pages 241-261.
    10. Smale, S., 1974. "Global analysis and economics III : Pareto Optima and price equilibria," Journal of Mathematical Economics, Elsevier, vol. 1(2), pages 107-117, August.
    11. Hart, Oliver D., 1975. "On the optimality of equilibrium when the market structure is incomplete," Journal of Economic Theory, Elsevier, vol. 11(3), pages 418-443, December.
    12. Werner, Jan, 1985. "Equilibrium in economies with incomplete financial markets," Journal of Economic Theory, Elsevier, vol. 36(1), pages 110-119, June.
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    Cited by:

    1. Gazi Kara & S. Mehmet Ozsoy, 2016. "Bank regulation under fire sale externalities," Finance and Economics Discussion Series 2016-026, Board of Governors of the Federal Reserve System (U.S.).
    2. Giancarlo Corsetti & Luca Dedola & Sylvain Leduc, 2018. "Exchange Rate Misalignment, Capital Flows, and Optimal Monetary Policy Trade-off," Discussion Papers 1806, Centre for Macroeconomics (CFM).
    3. repec:eee:inecon:v:111:y:2018:i:c:p:61-80 is not listed on IDEAS
    4. Corsetti, Giancarlo & Dedola, Luca & Leduc, Sylvain, 2018. "Exchange Rate Misalignment, Capital Flows, and Optimal Monetary Policy Trade-offs," CEPR Discussion Papers 12850, C.E.P.R. Discussion Papers.
    5. Corsetti, G. & Dedola, L. & Leduc, S., 2018. "Exchange Rate Misalignment, Capital Flows, and Optimal Monetary Policy Trade-offs," Cambridge Working Papers in Economics 1822, Faculty of Economics, University of Cambridge.
    6. Korinek, Anton, 2018. "Regulating capital flows to emerging markets: An externality view," Journal of International Economics, Elsevier, vol. 111(C), pages 61-80.

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