Markets with endogenous uncertainty: theory and policy
Classic formulations of markets regard uncertainty as originating from acts of nature. I extend this to a formulation of markets which face risks induces by the economy itself, such as the environmental risks of atmospheric and climate change induced by CFC and CO2 emissions. I formulate and prove the existence of a general competitive equilibrium where the state space and the probabilities of events are endogenously determines as part of the equilibrium. Traders take optimal positions with respect to the uncertainty which their own actions induce. The equilibrium allocations are efficient in a restricted sense. I show that scientific uncertainty can be fully hedged. However uncertainty induced by the unknown level of output at an equilibrium cannot be hedged fully. I discuss applications for CAT Futures, recently introduced on the Chicago Board of Trade, and to international environmental strategies.
|Date of creation:||1996|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
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.:
- Chichilnisky Graciela & Heal Geoffrey M., 1993. "Competitive Equilibrium in Sobolev Spaces without Bounds on Short Sales," Journal of Economic Theory, Elsevier, vol. 59(2), pages 364-384, April.
- Wilson, Robert, 1992. "Strategic analysis of auctions," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 1, chapter 8, pages 227-279 Elsevier.
- Cass, David & Chichilnisky, Graciela & Wu, Ho-Mou, 1996. "Individual Risk and Mutual Insurance," Econometrica, Econometric Society, vol. 64(2), pages 333-41, March.
- Chichilnisky, G. & Heal, G. & Streufert, P.A. & Swinkels, J.M., 1992.
"Believing in Multiple Equilibria,"
92-32, Columbia - Graduate School of Business.
- Graciela Chichilnisky & Geoffrey Heal, 1993.
"Global Environmental Risks,"
Journal of Economic Perspectives,
American Economic Association, vol. 7(4), pages 65-86, Fall.
- Stein, Jerome L, 1992. "Price Discovery Processes," The Economic Record, The Economic Society of Australia, vol. 0(0), pages 34-45, Supplemen.
- CHICHILNISKY , Graciela, 1995.
"A Unified Perspective on Resource Allocation : Limited Arbitrage is Necessary and Sufficient for the Existence of a Competitive Equilibrium, the Core and Social Choice,"
CORE Discussion Papers
1995027, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Chichilnisky, G, 1996. "A Unified Perspective on Resource Allocation : Limited Arbitrage is Necessary and Sufficient for the Existence of a Competitive Equilibrium, the Core and Social Choice," Papers 96-20, Columbia - Graduate School of Business.
- Chichilnisky, G, 1996. "A Unified perspective on Resource Allocation : Limited Arbitrage is Necessary and Sufficient for the Existence of a Competitive Equilibrium, the Core and Social Choice," Discussion Papers 1996_29, Columbia University, Department of Economics.
- Chichilnisky, Graciela, 1997. "Limited arbitrage is necessary and sufficient for the existence of an equilibrium," Journal of Mathematical Economics, Elsevier, vol. 28(4), pages 470-479, November.
- Fudenberg, Drew & Holmstrom, Bengt & Milgrom, Paul, 1990.
"Short-term contracts and long-term agency relationships,"
Journal of Economic Theory,
Elsevier, vol. 51(1), pages 1-31, June.
- Drew Fudenberg & Bengt Holmstrom & Paul Milgrom, 1987. "Short-Term Contracts and Long-Term Agency Relationships," Working papers 468, Massachusetts Institute of Technology (MIT), Department of Economics.
- repec:cup:cbooks:9780521319881 is not listed on IDEAS
- Chichilnisky, Graciela, 1977. "Spaces of economic agents," Journal of Economic Theory, Elsevier, vol. 15(1), pages 160-173, June.
- Chichilnisky, G., 1992. "Existence and Optimality of a General Equilibrium with Endogenous Uncertainty," Papers 93-11, Columbia - Graduate School of Business.
- Hahn, F., 1992. "Incomplete Market Economy," Papers 166, Cambridge - Risk, Information & Quantity Signals.
- Chichilnisky, Graciela, 1994. "Social Diversity, Arbitrage, and Gains from Trade: A Unified Perspective on Resource Allocation," American Economic Review, American Economic Association, vol. 84(2), pages 427-34, May.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:8612. 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: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.