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General equilibrium and endogenous creation of asset markets

  • Faias, Marta

This paper studies a class of general equilibrium economies in which asset markets arise as choice of /nancial intermediaries. The economy is modeled as a two stage game as in Bisin[8]. In the /rst stage intermediaries set up the /nancial structure according to the expectation that they have for the sec- ond stage outcome. In the second stage, consumers behave as price takers in the commodity market and in the previously created assets market. We consider that intermediaries form their expectations using continuous random selections from the second stage equilibrium correspondence (di.erently from Bisin [8] where an endogenous beliefs expectation was used). We establish the existence of equilibria in mixed strategies and moreover, we obtain an approximate equilibria in pure strategies by modeling explicitly the incomplete information that each intermediary has about others intermediaries /xed cost functions.

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File URL: http://fesrvsd.fe.unl.pt/WPFEUNL/WP2004/wp454.pdf
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Paper provided by Universidade Nova de Lisboa, Faculdade de Economia in its series FEUNL Working Paper Series with number wp454.

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Length: 31 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:unl:unlfep:wp454
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  1. Gabrielle Demange & Guy Laroque, 1993. "Private Information and the Design of Securities," CEPR Financial Markets Paper 0036, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ..
  2. Pesendorfer Wolfgang, 1995. "Financial Innovation in a General Equilibrium Model," Journal of Economic Theory, Elsevier, vol. 65(1), pages 79-116, February.
  3. Luis Braido, 2005. "General equilibrium with endogenous securities and moral hazard," Economic Theory, Springer, vol. 26(1), pages 85-101, 07.
  4. Simon, Leo K. & Zame, William R., 1987. "Discontinous Games and Endogenous Sharing Rules," Department of Economics, Working Paper Series qt8n46v2wv, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  5. Duffie Darrell & Rahi Rohit, 1995. "Financial Market Innovation and Security Design: An Introduction," Journal of Economic Theory, Elsevier, vol. 65(1), pages 1-42, February.
  6. Bisin, Alberto, 1998. "General Equilibrium with Endogenously Incomplete Financial Markets," Journal of Economic Theory, Elsevier, vol. 82(1), pages 19-45, September.
  7. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, June.
  8. Franklin Allen, Douglas Gale, 1988. "Optimal Security Design," Review of Financial Studies, Society for Financial Studies, vol. 1(3), pages 229-263.
  9. Mas-Colell, Andreu & Nachbar, John H., 1991. "On the finiteness of the number of critical equilibria, with an application to random selections," Journal of Mathematical Economics, Elsevier, vol. 20(4), pages 397-409.
  10. Balasko, Yves & Cass, David, 1989. "The Structure of Financial Equilibrium with Exogenous Yields: The Case of Incomplete Markets," Econometrica, Econometric Society, vol. 57(1), pages 135-62, January.
  11. Faias, Marta & Moreno-Garcia, Emma & Pascoa, Mario Rui, 2002. "Real indeterminacy of equilibria and manipulability," Journal of Mathematical Economics, Elsevier, vol. 37(4), pages 325-340, July.
  12. Magill, Michael & Shafer, Wayne, 1991. "Incomplete markets," Handbook of Mathematical Economics, in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 30, pages 1523-1614 Elsevier.
  13. Stahn, Hubert, 1998. "On monopolistic equilibria with incomplete markets: the case of an exchange economy," Journal of Mathematical Economics, Elsevier, vol. 29(1), pages 83-107, January.
  14. Geanakoplos, John & Mas-Colell, Andreu, 1989. "Real indeterminacy with financial assets," Journal of Economic Theory, Elsevier, vol. 47(1), pages 22-38, February.
  15. Hara Chiaki, 1995. "Commission-Revenue Maximization in a General Equilibrium Model of Asset Creation," Journal of Economic Theory, Elsevier, vol. 65(1), pages 258-298, February.
  16. repec:cup:cbooks:9780521335614 is not listed on IDEAS
  17. Geanakoplos, John, 1990. "An introduction to general equilibrium with incomplete asset markets," Journal of Mathematical Economics, Elsevier, vol. 19(1-2), pages 1-38.
  18. Paul Milgrom & Robert Weber, 1981. "Distributional Strategies for Games with Incomplete Information," Discussion Papers 428R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  19. Werner, Jan, 1985. "Equilibrium in economies with incomplete financial markets," Journal of Economic Theory, Elsevier, vol. 36(1), pages 110-119, June.
  20. Allen, Beth, 1994. "Randomization and the limit points of monopolistic competition," Journal of Mathematical Economics, Elsevier, vol. 23(3), pages 205-218, May.
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