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Existence, regularity, and constrained suboptimality of competitive allocations when the asset market is incomplete

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  • GEANAKOPLOS, John D.
  • POLEMARCHAKIS, Heraklis M.

Abstract

Let assets be denominated in an a priori specified numeraire. Whether or not the asset is complete, a competitive equilibrium exists as long as arbitrage is possible when assets are free. Generically, the set of competitive equilibria is finite, and the equilibrium prices and allocations in the commodity spot markets are uniquely determined by the asset allocation is generically constrained suboptimal: there exists an arbitrarily small reallocation of the existing assets, which leads to a Pareto improvement in welfare when prices and allocations in the commodity spot markets adjust to maintain equilibrium.
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Suggested Citation

  • GEANAKOPLOS, John D. & POLEMARCHAKIS, Heraklis M., 1986. "Existence, regularity, and constrained suboptimality of competitive allocations when the asset market is incomplete," LIDAM Reprints CORE 711, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:711
    DOI: 10.1017/CBO9780511983566.007
    Note: In : Walter P. Heller, Ross M. Starr and David A. Starret (eds.), Uncertainty, Information and Communication. Essays in Honor of K.J. Arrow. Volume 3. Cambridge, Cambridge University Press, 65-95, 1986
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    References listed on IDEAS

    as
    1. Grossman, Sanford J., 1977. "A characterization of the optimality of equilibrium in incomplete markets," Journal of Economic Theory, Elsevier, vol. 15(1), pages 1-15, June.
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