Welfare effects of short-sale constraints under heterogeneous beliefs

Hiroyuki Nakata

Economic Theory, 2013, vol. 53, issue 2, 283-314

Abstract: This paper examines the welfare effects of short-sale constraints in an overlapping generations model of a financial economy with heterogeneous beliefs by focussing on the case of rational beliefs in the sense of Kurz (Econ Theory 4:877–900, 1994 ). To measure the social welfare, we adopt a measure that is based on the ex post social welfare concept in the sense of Hammond (Economica 48:235–250, 1981 ), instead of the standard ex ante criterion, since heterogeneity in beliefs invalidates it. Simulation results indicate the existence of socially optimal short-sale constraints. Copyright Springer-Verlag 2013

Keywords: Ex post social welfare; Heterogeneous beliefs; Rational beliefs; Short-sale constraint; D52; D83; D84; G18 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:spr:joecth:v:53:y:2013:i:2:p:283-314

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DOI: 10.1007/s00199-012-0691-5

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