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The Case for Incomplete Markets

Author

Listed:
  • Viktor Tsyrennikov

    (Cornell)

  • Timothy Cogley

    (New York University)

  • Thomas Sargent

    (New York University)

  • David Easley

    (Cornell University)

  • Lawrence Blume

    (Cornell University)

Abstract

We propose a new welfare criterion that allows us to rank different financial market structures in the presence of belief heterogeneity. We analyze economies with complete and incomplete financial markets and/or restricted trading possibilities in the form of borrowing limits or transaction costs. We describe circumstances under which some restrictions on financial markets are desirable according to our welfare criterion.

Suggested Citation

  • Viktor Tsyrennikov & Timothy Cogley & Thomas Sargent & David Easley & Lawrence Blume, 2014. "The Case for Incomplete Markets," 2014 Meeting Papers 1098, Society for Economic Dynamics.
    • Handle: RePEc:red:sed014:1098
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    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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