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Pareto Improvement and Agenda Control of Sequential Financial Innovations

Author

Listed:
  • Chiaki Hara

    (Institute of Economic Research, Kyoto University)

Abstract

In an exchange economy under uncertainty with two periods, one physical good, and finitely many states of the world, we show that for every (complete or incomplete) market span there exists a sequence of securities such that if they are introduced into markets one by one, the prices of any security is not affected by the subsequent introduction of newer securities and they together generate the given market span. Since these securities generate no pecuniary externalities, this result implies that every stage of such sequential financial innovations is Pareto-improving. Its implications on financial innovations via voting are also explored.

Suggested Citation

  • Chiaki Hara, 2010. "Pareto Improvement and Agenda Control of Sequential Financial Innovations," KIER Working Papers 748, Kyoto University, Institute of Economic Research.
  • Handle: RePEc:kyo:wpaper:748
    as

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    File URL: http://www.kier.kyoto-u.ac.jp/DP/DP748.pdf
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    References listed on IDEAS

    as
    1. Rohit Rahi & Jean-Pierre Zigrand, 2009. "Strategic Financial Innovation in Segmented Markets," Review of Financial Studies, Society for Financial Studies, vol. 22(8), pages 2941-2971, August.
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    More about this item

    Keywords

    General equilibrium theory of incomplete security markets; financial innovation; Pareto improvement; agenda control; Nash equilibrium; subgame perfect equilibrium.;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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