Pareto Optima and Competitive Equilibria with Moral Hazard and Financial Markets

Luca Panaccione

The B.E. Journal of Theoretical Economics, 2007, vol. 7, issue 1, 21

Abstract: In this paper, we study a two-period pure exchange economy with idiosyncratic uncertainty, moral hazard and multiple consumption goods. We consider two different market structures: contingent commodity markets on the one hand, and financial plus spot commodity markets on the other hand. We propose a competitive equilibrium concept for each market structure. We first verify that it is possible to decentralize constrained efficient allocations as equilibria with contingent markets. Subsequently, we characterize the conditions which prevent constrained efficient allocations from being decentralized as equilibria with financial markets.

Keywords: moral hazard; multiple goods; constrained efficiency (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (6)

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DOI: 10.2202/1935-1704.1358

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