A case for incomplete markets

Lawrence Blume, Timothy Cogley, David Easley, Thomas Sargent and Viktor Tsyrennikov

Journal of Economic Theory, 2018, vol. 178, issue C, 191-221

Abstract: If two rational agents want to trade and there are no externalities, then trade is Pareto improving. Economists generally oppose restrictions on such trade. Complete markets allocations are Pareto optimal and thus complete markets are generally viewed as good. But when individuals want to trade because of heterogeneous beliefs, this standard argument is less compelling. We illustrate this in a standard general equilibrium setting and explore potential social benefits from restrictions on trade that make markets incomplete.

Keywords: Social welfare; Heterogeneous beliefs; Spurious unanimity; Speculation; Incomplete markets; Financial regulation (search for similar items in EconPapers)
JEL-codes: D52 D61 D71 D83 D84 G18 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Working Paper: A Case for Incomplete Markets (2015)
Working Paper: The Case for Incomplete Markets (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:178:y:2018:i:c:p:191-221

DOI: 10.1016/j.jet.2018.09.004

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