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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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  17. Herakles Polemarchakis, 2001. "The taxation of trades in assests," Working Papers 2001-21, Brown University, Department of Economics.
  18. Debreu, Gerard, 1970. "Economies with a Finite Set of Equilibria," Econometrica, Econometric Society, vol. 38(3), pages 387-92, May.
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  23. Madden, Paul, 1982. "Catastrophic Walrasian Equilibrium from the Non-Walrasian Viewpoint: A Three-Good Macroeconomic Example," Review of Economic Studies, Wiley Blackwell, vol. 49(4), pages 661-67, October.
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