A Simple Model of Useless Speculation
The paper presents a general equilibrium model of a pure exchange economy with stochastic endowment in which speculation is profitable and stabilizes prices, but is useless from a welfare point of view. Reconciling the Siegel paradox with the theory of incomplete markets we show that banning speculation by closing the forward exchange market may increase social welfare.
|Date of creation:||Nov 1990|
|Date of revision:|
|Publication status:||published as C and S working Paper , December 1995, Japanese Economic Review 51, (2000), pp. 85-95.|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hart, Oliver D., 1975. "On the optimality of equilibrium when the market structure is incomplete," Journal of Economic Theory, Elsevier, vol. 11(3), pages 418-443, December.
- Samuelson, Paul A, 1972. "The Consumer Does Benefit From Feasible Price Stability," The Quarterly Journal of Economics, MIT Press, vol. 86(3), pages 476-93, August.
- McCulloch, J Huston, 1975. "Operational Aspects of the Siegel Paradox: Comment," The Quarterly Journal of Economics, MIT Press, vol. 89(1), pages 170-72, February.
- Paul R. Krugman, 1981. "Consumption Preferences, Asset Demands, and Distribution Effects in International Financial Markets," NBER Working Papers 0651, National Bureau of Economic Research, Inc.
- Hal R. Varian, 1989. "Measuring The Deadweight Costs Of Dup And Rent Seeking Activities," Economics and Politics, Wiley Blackwell, vol. 1(1), pages 81-95, 03.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:3513. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.