LONG-LIVED ASSETS, INCOMPLETE MARKETS, AND OPTIMALITY

Subir Chattopadhyay
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Subir Chattopadhyay: Universidad de Alicante

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: We consider general OLG economies under uncertainty, with dividend paying assets of infinite maturity and money, and in which one good is available for consumption. We study the optimality properties of equilibria when asset markets are allowed to be sequentially incomplete. We show that if equilibrium in asset markets has to be restored once an intervention has been made, then all non-monetary competitive equilibria are locally constrained optimal. We proceed to a notion of optimality which allows asset markets to not clear and provide a complete characterization of those equilibria that are optimal in terms of the prices and dividends of assets of infinite maturity and feasible portfolio reassignments. Results for various special cases follow; in particular, we show that if dividends are non-negative and assets are freely disposable then every non-monetary equilibrium allocation is optimal. Other results shed light on the role played by money vis-a-vis other assets of infinite maturity in determining the optimality properties of equilibria when markets are sequentially complete/incomplete and free disposal of assets is or is not allowed.

Keywords: Stochastic Overlapping Generations Models; Sequentially Incomplete Markets (search for similar items in EconPapers)
JEL-codes: D52 D61 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2001-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:2001-10

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