Implementing Arrow-Debreu equilibria by trading infinitely lived securities

Kevin Huang () and Z. Liu

No 2000-21, Working Papers from Utah State University, Department of Economics

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.

Keywords: Arrow-Debreu equilibrium; security markets equilibrium; price bubbles; transfers (search for similar items in EconPapers)
Pages: 31 pages
New Economics Papers: this item is included in nep-fin, nep-fmk and nep-mic
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Related works:
Journal Article: Implementing Arrow-Debreu equilibria by trading infinitely-lived securities (2004)
Working Paper: Implementing Arrow-Debreu equilibria by trading infinitely-lived securities (2002)
Working Paper: Implementing Arrow-Debreu Equilibria by Trading Infinitely-Lived Securities (2000)
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