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Two-period economies with price-contingent deliveries

Listed author(s):
  • João Correia da Silva

    ()

    (CEF.UP and FEP, Universidade do Porto)

An economy with ex ante markets for future delivery contingent on ex post spot market prices is considered. Since spot prices are publicly observed ex post, this framework bypasses the enforcement problems that may arise as a result of differential information about states of nature. Generically, the equilibria of an economy with price-contingent deliveries coincide with the equilibria of the corresponding economy with state-contingent deliveries. However, replacing state-contingent deliveries with price-contingent deliveries may generate additional equilibria and/or remove some equilibria. The perfect foresight hypothesis is crucial to avoid a severe problem of nonexistence of equilibrium.

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File URL: http://www.fep.up.pt/investigacao/workingpapers/wp529.pdf
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Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 529.

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Length: 23 pages
Date of creation: Mar 2014
Handle: RePEc:por:fepwps:529
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