Inefficiency of competitive equilibrium with hidden action and financial markets

Luca Panaccione

No 2006049, Discussion Papers (ECON - Département des Sciences Economiques) from Université catholique de Louvain, Département des Sciences Economiques

Abstract: In this paper, we study a pure exchange economy with idiosyncratic uncertainty, hidden action and multiple consumption goods. We consider two different market structures : contingent markets on the one hand, and financial and spot markets on the other hand. We propose a competitive equilibrium concept for each market structure. We show that the equilibrium with contingent markets is efficient in an appropriate sense, while the equilibrium with financial and spot markets is inefficient, provided that assumptions on preferences more general than those usually considered in the literature hold.

Keywords: Hidden action; enforcement; constrained efficiency (search for similar items in EconPapers)
JEL-codes: D53 D61 D82 (search for similar items in EconPapers)
Pages: 21
Date: 2006-09-01
New Economics Papers: this item is included in nep-dge and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://sites.uclouvain.be/econ/DP/IRES/2006-49.pdf (application/pdf)

Related works:
Working Paper: Inefficiency of competitive equilibrium with hidden action and financial markets (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvec:2006049

Access Statistics for this paper

More papers in Discussion Papers (ECON - Département des Sciences Economiques) from Université catholique de Louvain, Département des Sciences Economiques Place Montesquieu 3, 1348 Louvain-la-Neuve (Belgium). Contact information at EDIRC.
Bibliographic data for series maintained by Virginie LEBLANC ().