Generic inefficiency of equilibria in the general equilibrium model with incomplete asset markets and infinite time

Felix Kubler and Karl Schmedders

Economic Theory, 2003, vol. 22, issue 1, 15 pages

Abstract: We consider a Lucas asset-pricing model with heterogeneous agents, exogenous labor income, and a finite number of exogenous shocks. Although agents are infinitely lived, endowments and dividends are time-invariant functions of the exogenous shock alone and are thus restricted to lie in a finite-dimensional space; genericity analysis can be conducted on sets of zero Lebesgue measure. When financial markets are incomplete, that is, there are fewer financial securities than shocks, we show that generically in individual endowments all competitive equilibria are Pareto inefficient. Copyright Springer-Verlag Berlin Heidelberg 2003

Keywords: Keywords and Phrases: Incomplete markets; Heterogeneous agents; Inefficient equilibria.; JEL Classification Numbers: C63; D50; D52. (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s00199-002-0272-0

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