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Nonexistence of Constrained Efficient Equilibria when Markets are Incomplete

  • Egbert Dierker

    (University of Vienna)

  • Hildegard Dierker

    (University of Vienna)

  • Birgit Grodal

    (University of Copenhagen)

We consider economies with incomplete markets, production, an a given distribution of initial endowments. The main purpose of the paper is to present a robust example of an economy with only one firm and one good per state in which no production decision entails a constrained efficient outcome. In particular, the unique Drèze equilibrium is dominated by every other production decision.

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Paper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 2000-07.

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Length: 15 pages
Date of creation: Oct 2000
Date of revision:
Publication status: Published in: Econometrica. May 2002; 70(3): 1245-51
Handle: RePEc:kud:kuieci:2000-07
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Web page: http://www.econ.ku.dk/cie/
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  1. Kenneth J. Arrow, 1950. "A Difficulty in the Concept of Social Welfare," Journal of Political Economy, University of Chicago Press, vol. 58, pages 328.
  2. Dierker, E. & Dierker, H. & Grodal, B., 1999. "Incomplete Markets and the Firm," Papers 9902, Washington St. Louis - School of Business and Political Economy.
  3. John Geanakoplos & Michael Magill & Martine Quinzii & J. Dreze, 1988. "Generic Inefficiency of Stock Market Equilibrium When Markets Are Incomplete," Cowles Foundation Discussion Papers 863, Cowles Foundation for Research in Economics, Yale University.
  4. Guesnerie, Roger, 1975. "Pareto Optimality in Non-Convex Economies," Econometrica, Econometric Society, vol. 43(1), pages 1-29, January.
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