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Contracting over Prices

  • Shurojit Chatterji

    ()

    (Singapore Management University, School of Economics)

  • Sayantan Ghosal

    ()

    (Warwick University)

We define a solution concept, perfectly contracted equilibrium, for an intertempo- ral exchange economy where agents are simultaneously price takers in spot commod- ity markets while engaging in ecient, non-Walrasian contracting over future prices. Without requiring that agents have perfect foresight, we show that perfectly contracted equilibrium outcomes are a subset of Pareto optimal allocations. It is a robust possi- bility for perfectly contracted equilibrium outcomes to differ from Arrow-Debreu equi- librium outcomes. We show that both centralized banking and retrading with bilateral contracting can lead to perfectly contracted equilibria.

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Paper provided by Singapore Management University, School of Economics in its series Working Papers with number 36-2012.

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Length: 40 pages
Date of creation: Dec 2012
Date of revision:
Publication status: Published in SMU Economics and Statistics Working Paper Series
Handle: RePEc:siu:wpaper:36-2012
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  1. Ho-Mou Wu & Mordecai Kurz, 1996. "Endogenous uncertainty in a general equilibrium model with price contingent contracts (*)," Economic Theory, Springer, vol. 8(3), pages 461-488.
  2. Green, Jerry R, 1973. "Temporary General Equilibrium in a Sequential Trading Model with Spot and Futures Transactions," Econometrica, Econometric Society, vol. 41(6), pages 1103-23, November.
  3. 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.
  4. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
  5. Feldman, Allan M, 1973. "Bilateral Trading, Processes, Pairwise Optimality, and Pareto Optimality," Review of Economic Studies, Wiley Blackwell, vol. 40(4), pages 463-73, October.
  6. Kurz, Mordecai, 1994. "On Rational Belief Equilibria," Economic Theory, Springer, vol. 4(6), pages 859-76, October.
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