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General Equilibrium with Endogenous Trading Constraints

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  • Cea-Echenique, Sebastián
  • Torres-Martínez, Juan Pablo

Abstract

We build a general equilibrium model where agents are subject to endogenous trading constraints, making the access to financial trade dependent on prices and consumption decisions. Besides, our framework is compatible with the existence of endogenous financial segmentation and credit markets' exclusion. Two results of equilibrium existence are shown. In the first one, we assume individuals can super-replicate financial payments buying durable commodities and investing in assets that give liquidity to all agents. In the second result, under strict monotonicity of preferences, we suppose there are agents that may compensate with increments in present demand the losses of well-being generated by reductions of future consumption.

Suggested Citation

  • Cea-Echenique, Sebastián & Torres-Martínez, Juan Pablo, 2014. "General Equilibrium with Endogenous Trading Constraints," MPRA Paper 55359, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:55359
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    References listed on IDEAS

    as
    1. Aouani, Zaier & Cornet, Bernard, 2011. "Reduced equivalent form of a financial structure," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 318-327.
    2. Aouani, Zaier & Cornet, Bernard, 2009. "Existence of financial equilibria with restricted participation," Journal of Mathematical Economics, Elsevier, vol. 45(12), pages 772-786, December.
    3. Matthew Hoelle & Marina Pireddu & Antonio Villanacci, 2016. "Incomplete financial markets with real assets and wealth-dependent credit limits," Journal of Economics, Springer, vol. 117(1), pages 1-36, January.
    4. John Geanakoplos & William Zame, 2014. "Collateral equilibrium, I: a basic framework," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 56(3), pages 443-492, August.
    5. Seghir, Abdelkrim & Torres-Martínez, Juan Pablo, 2011. "On equilibrium existence with endogenous restricted financial participation," Journal of Mathematical Economics, Elsevier, vol. 47(1), pages 37-42, January.
    6. Bernard Cornet & Ramu Gopalan, 2010. "Arbitrage and equilibrium with portfolio constraints," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 45(1), pages 227-252, October.
    7. Cass, David & Siconolfi, Paolo & Villanacci, Antonio, 2001. "Generic regularity of competitive equilibria with restricted participation," Journal of Mathematical Economics, Elsevier, vol. 36(1), pages 61-76, September.
    8. Michele Gori & Marina Pireddu & Antonio Villanacci, 2014. "Existence of financial equilibria with endogenous short selling restrictions and real assets," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 37(2), pages 349-371, October.
    9. Carosi, Laura & Gori, Michele & Villanacci, Antonio, 2009. "Endogenous restricted participation in general financial equilibrium," Journal of Mathematical Economics, Elsevier, vol. 45(12), pages 787-806, December.
    10. Zaier Aouani & Bernard Cornet, 2017. "Eliminating useless portfolios in financial economies with constraints," PSE-Ecole d'économie de Paris (Postprint) hal-00683744, HAL.
    11. Cea-Echenique, Sebastián & Torres-Martínez, Juan Pablo, 2016. "Credit segmentation in general equilibrium," Journal of Mathematical Economics, Elsevier, vol. 62(C), pages 19-27.
    12. Emma Moreno-García & Juan Torres-Martínez, 2012. "Equilibrium existence in infinite horizon economies," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 11(2), pages 127-145, August.
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    16. Balasko, Yves & Cass, David & Siconolfi, Paolo, 1990. "The structure of financial equilibrium with exogenous yields : The case of restricted participation," Journal of Mathematical Economics, Elsevier, vol. 19(1-2), pages 195-216.
    17. repec:dau:papers:123456789/6894 is not listed on IDEAS
    18. Radner, Roy, 1972. "Existence of Equilibrium of Plans, Prices, and Price Expectations in a Sequence of Markets," Econometrica, Econometric Society, vol. 40(2), pages 289-303, March.
    19. Matthew Hoelle & Marina Pireddu & Antonio Villanacci, 2012. "Incomplete Financial Markets With Real Assets and Endogenous Credit Limits," Purdue University Economics Working Papers 1271, Purdue University, Department of Economics.
    20. Iraola, Miguel A. & Torres-Martínez, Juan Pablo, 2014. "Equilibrium in collateralized asset markets: Credit contractions and negative equity loans," Journal of Mathematical Economics, Elsevier, vol. 55(C), pages 113-122.
    21. V.F. Martins-da-Rocha & L. Triki, 2005. "Equilibria in exchange economies with financial constraints: Beyond the Cass Trick," Microeconomics 0503013, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Faias, Marta & Torres-Martínez, Juan Pablo, 2017. "Credit market segmentation, essentiality of commodities, and supermodularity," Journal of Mathematical Economics, Elsevier, vol. 70(C), pages 115-122.
    2. Cea-Echenique, Sebastián & Torres-Martínez, Juan Pablo, 2016. "Credit segmentation in general equilibrium," Journal of Mathematical Economics, Elsevier, vol. 62(C), pages 19-27.
    3. Iraola, Miguel A. & Torres-Martínez, Juan Pablo, 2014. "Equilibrium in collateralized asset markets: Credit contractions and negative equity loans," Journal of Mathematical Economics, Elsevier, vol. 55(C), pages 113-122.
    4. P'ia Amigo & Sebasti'an Cea-Echenique & Felipe Feijoo, 2020. "An Emissions Trading System to reach NDC targets in the Chilean electric sector," Papers 2005.03843, arXiv.org.
    5. Amigo, Pía & Cea-Echenique, Sebastián & Feijoo, Felipe, 2021. "A two stage cap-and-trade model with allowance re-trading and capacity investment: The case of the Chilean NDC targets," Energy, Elsevier, vol. 224(C).
    6. Iraola, Miguel A. & Sepúlveda, Fabián & Torres-Martínez, Juan Pablo, 2019. "Financial segmentation and collateralized debt in infinite-horizon economies," Journal of Mathematical Economics, Elsevier, vol. 80(C), pages 56-69.

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    More about this item

    Keywords

    Incomplete Markets; General Equilibrium; Endogenous Trading Constraints;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G1 - Financial Economics - - General Financial Markets

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