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Walrasian Non-tâtonnement with Incomplete and Imperfectly Competitive Markets

  • Gaël Giraud

    ()

    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)

Static competitive equilibria in economies with incomplete markets are generically constrained suboptimal. Allocations induced by strategic equilibria of imperfectly competitive markets are also generically inefficient. In both cases, there is scope for Pareto-improving amendments. In an extension of the limit-price process introduced in Giraud [20] to incomplete markets (with infinitely many uncertain states) populated by finitely many players, we show that these two inefficiency problems can be partially overcome when rephrased in a non-tatonnement process. Traders are myopic and trade financial securities in continuous time by sending limit-orders so as to select a portfolio that maximizes the first-order approximation of their expected indirect utility. We show that financial trade curves exist and converge to some second-best efficient restpoint unless some miscoordination stops the dynamics at some inefficient, but locally unstable point.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00155717.

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Date of creation: Apr 2007
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Handle: RePEc:hal:cesptp:halshs-00155717
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