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Pareto Improving Price Regulation When the Asset Market is Incomplete

  • P. J. J. Herings

    (Universiteit Maastricht)

  • H. M. Polemarchakis

    (Brown University)

Incomplete asset markets cause competitive equilibria to be constrained suboptimal and provides scope for Pareto improving interventions. In this paper, we examine how intervention in prices in asset or spot commodity markets serve this purpose. We show that, if ?x-price equilibria behave sufficiently regularly near Walrasian equilibria, Pareto improving price regulation is generically possible. An advantage of price regulation, contrasted with interventions in individuals’ asset portfolios, is that it operates anonymously, on market variables.

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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 03-20.

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Length: 20 pages
Date of creation: May 2003
Date of revision:
Handle: RePEc:kud:kuiedp:0320
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  9. David Cass & Alessandro Citanna, 1998. "Pareto improving financial innovation in incomplete markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 11(3), pages 467-494.
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  18. Kajii Atsushi, 1994. "Anonymity and Optimality of Competitive Equilibria when Markets Are Incomplete," Journal of Economic Theory, Elsevier, vol. 64(1), pages 115-129, October.
  19. Debreu, Gerard, 1972. "Smooth Preferences," Econometrica, Econometric Society, vol. 40(4), pages 603-15, July.
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