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Constrained suboptimality in incomplete markets: a general approach and two applications

Author

Listed:
  • Alessandro Citanna

    (GSIA, Carnegie Mellon University - Carnegie Mellon University)

  • Atsushi Kajii

    (Institute of Policy and Planning Sciences, University of Tsukuba - University of Tsukuba)

  • Antonio Villanacci

    (DIMADEFAS, Università degli Studi di Firenze - Università degli studi di Firenze)

Abstract

In this paper we re-examine generic constrained suboptimality of equilibrium allocations with incomplete numeraire asset markets. We provide a general framework which is capable of resolving some issues left open by the previous literature, and encompasses many kinds of intervention in partially controlled market economies. In particular, we establish generic constrained suboptimality, as studied by Geanakoplos and Polemarchakis, even without an upper bound on the number of households. Moreover, we consider the case where asset markets are left open, and the planner can make lump-sum transfers in a limited number of goods. We show that such a perfectly anticipated wealth redistribution policy, though consistent with the assumed incomplete financial structure, is typically effective.

Suggested Citation

  • Alessandro Citanna & Atsushi Kajii & Antonio Villanacci, 1998. "Constrained suboptimality in incomplete markets: a general approach and two applications," Post-Print hal-00479390, HAL.
  • Handle: RePEc:hal:journl:hal-00479390
    DOI: 10.1007/s001990050199
    Note: View the original document on HAL open archive server: https://hal-hec.archives-ouvertes.fr/hal-00479390
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    Keywords

    incomplete markets; Constrained suboptimality;

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets

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