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Nonexistence of Constrained Efficient Equilibria when Markets are Incomplete

Author

Listed:
  • Egbert Dierker

    (University of Vienna)

  • Hildegard Dierker

    (University of Vienna)

  • Birgit Grodal

    (University of Copenhagen)

Abstract

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.

Suggested Citation

  • Egbert Dierker & Hildegard Dierker & Birgit Grodal, 2000. "Nonexistence of Constrained Efficient Equilibria when Markets are Incomplete," CIE Discussion Papers 2000-07, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  • Handle: RePEc:kud:kuieci:2000-07
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    References listed on IDEAS

    as
    1. Dierker, E. & Dierker, H. & Grobal, B., 1999. "Incomplete Markets and the Firm," Papers 99-03, Carleton - School of Public Administration.
    2. Kenneth J. Arrow, 1950. "A Difficulty in the Concept of Social Welfare," Journal of Political Economy, University of Chicago Press, vol. 58, pages 328-328.
    3. Guesnerie, Roger, 1975. "Pareto Optimality in Non-Convex Economies," Econometrica, Econometric Society, vol. 43(1), pages 1-29, January.
    4. Geanakoplos, J. & Magill, M. & Quinzii, M. & Dreze, J., 1990. "Generic inefficiency of stock market equilibrium when markets are incomplete," Journal of Mathematical Economics, Elsevier, vol. 19(1-2), pages 113-151.
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    Cited by:

    1. Stefano Demichelis & Klaus Ritzberger, 2011. "A general equilibrium analysis of corporate control and the stock market," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 46(2), pages 221-254, February.
    2. Bejan, Camelia, 2008. "Production and financial decisions under uncertainty," MPRA Paper 11033, University Library of Munich, Germany.
    3. Tarun Sabarwal, 2004. "A Consistent Firm Objective When Markets are Incomplete: Profit Maximization," Econometric Society 2004 North American Summer Meetings 141, Econometric Society.
    4. Bisin, Alberto; & Gottardi, Piero; & Ruta, Guido, 2014. "Equilibrium corporate finance and intermediation," Economics Working Papers ECO2014/09, European University Institute.
    5. Egbert Dierker & Hildegard Dierker, 2010. "Drèze equilibria and welfare maxima," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 45(1), pages 55-63, October.
    6. Sabarwal Tarun, 2007. "Value Maximization as an Ex-Post Consistent Firm Objective When Markets are Incomplete," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-21, January.
    7. Guido Ruta & Piero Gottardi, 2009. "Equilibrium corporate finance," 2009 Meeting Papers 149, Society for Economic Dynamics.
    8. Volker Britz & P. Herings & Arkadi Predtetchinski, 2013. "A bargaining theory of the firm," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 54(1), pages 45-75, September.
    9. Egbert Dierker & Hildegard Dierker & Birgit Grodal, 2005. "Are incomplete markets able to achieve minimal efficiency?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 25(1), pages 75-87, January.
    10. CRES, Hervé & TVEDE, Mich, 2004. "The Dreze and Grossman-Hart criteria for production in incomplete markets: Voting foundations and compared political stability," Les Cahiers de Recherche 794, HEC Paris.
    11. Britz Volker & Herings Jean-Jacques & Predtetchinski Arkadi, 2010. "Theory of the Firm: Bargaining and Competitive Equilibrium," Research Memorandum 057, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    12. repec:spr:etbull:v:3:y:2015:i:2:d:10.1007_s40505-015-0073-9 is not listed on IDEAS
    13. repec:spr:joecth:v:64:y:2017:i:1:d:10.1007_s00199-016-0968-1 is not listed on IDEAS
    14. Ritzberger, Klaus, 2005. "Shareholder voting," Economics Letters, Elsevier, vol. 86(1), pages 69-72, January.

    More about this item

    Keywords

    incomplete markets with production; constraint efficiency; Drèze equilibria;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • G1 - Financial Economics - - General Financial Markets
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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