Notes on the Suboptimality Result by J. D. Geanakoplos and H. M. Polemarchakis (1986)
J. D. Geanakoplos and H. M. Polemarchakis (1986) prove the generic constrained suboptimality of equilibrium allocations in two period economies with incomplete markets. They perturb asset prices at equilibrium when the degree of market incompleteness equals one. However, since prices are not fundamentals that parameterize the economy, a generic result cannot be obtained in such a way. In these notes we provide complete and detailed version of their proof in which the arguments do not depend on the dimension of the market incompleteness and in which utilities and endowments are perturbed.
|Date of creation:||Jul 2002|
|Date of revision:||Dec 2005|
|Publication status:||Published in Estudios Economicos|
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- Newbery, David M G & Stiglitz, Joseph E, 1982. "The Choice of Techniques and the Optimality of Market Equilibrium with Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 223-46, April.
- Alessandro Citanna & Atsushi Kajii & Antonio Villanacci, 1998.
"Constrained suboptimality in incomplete markets: a general approach and two applications,"
- Atsushi Kajii & Antonio Villanacci & Alessandro Citanna, 1998. "Constrained suboptimality in incomplete markets: a general approach and two applications," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 11(3), pages 495-521.
- Joseph E. Stiglitz, 1982. "The Inefficiency of the Stock Market Equilibrium," Review of Economic Studies, Oxford University Press, vol. 49(2), pages 241-261.
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