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Implementing Arrow-Debreu equilibria by trading infinitely lived securities

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  • K. Huang
  • Z. Liu

Abstract

We show that Arrow-Debreu equilibria with countably additive prices in infinite-time economy under uncertainty can be implemented by trading infinitely-lived securities in complete sequential markets under two different portfolio feasibility constraints: wealth constraint, and essentially bounded portfolios. Sequential equilibria with no price bubbles implement Arrow-Debreu equilibria, while those with price bubbles implement Arrow-Debreu equilibria with transfers. Transfers are equal to the value of price bubbles on initial portfolio holdings. Price bubbles may arise in sequential equilibrium under the wealth constraint, but with essentially bounded portfolios.

Suggested Citation

  • K. Huang & Z. Liu, "undated". "Implementing Arrow-Debreu equilibria by trading infinitely lived securities," Working Papers 2000-21, Utah State University, Department of Economics.
    • Handle: RePEc:usu:wpaper:2000-21
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    File URL: https://repec.bus.usu.edu/RePEc/usu/pdf/ERI2000-21.pdf
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    2. Aloisio Araujo, 2015. "General equilibrium, preferences and financial institutions after the crisis," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 58(2), pages 217-254, February.
    3. Marco Bassetto, 2006. "Politics and Efficiency of Separating Capital and Ordinary Government Budgets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(4), pages 1167-1210.
    4. Patrick Leoni, 2008. "Market power, survival and accuracy of predictions in financial markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 34(1), pages 189-206, January.
    5. BLOISE, Gaetano & DRÈZE, Jacques & POLEMARCHAKIS, Heracles, 2002. "Money and indeterminacy over an infinite horizon," CORE Discussion Papers 2002021, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    6. Clain-Chamosset-Yvrard, Lise, 2021. "Expectation-Driven Asset Price Fluctuations Under The Spirit Of Capitalism Hypothesis: The Role Of Heterogeneity," Macroeconomic Dynamics, Cambridge University Press, vol. 25(2), pages 509-535, March.
    7. Werner, Jan, 2014. "Rational asset pricing bubbles and debt constraints," Journal of Mathematical Economics, Elsevier, vol. 53(C), pages 145-152.

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