Observability and Optimality

John Geanakoplos () and Heracles M. Polemarchakis
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John Geanakoplos: Cowles Foundation, Yale University, https://economics.yale.edu/people/faculty/john-geanakoplos
Heracles M. Polemarchakis: Columbia University

No 901, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: Observability of an individual's excess demand function for assets and commodities as all prices and revenue vary suffices in order to recover his von Neumann-Morgenstern utility function. This is generically the case, even when the asset market is incomplete and the cardinal utility indices state dependent, as long as there are at least two commodities traded in spot markets at each state of nature. On the contrary, if the response of individuals' excess demand for assets as prices in spot commodity markets vary is not observable, recoverability fails when the asset market is incomplete. In particular, it is not possible to contradict the claim that the competitive allocation is fully optimal in spite of the incompleteness of the asset market.

Keywords: Utility function; asset market; equilibrium allocation (search for similar items in EconPapers)
Pages: 21 pages
Date: 1989-10
Note: CFP 752.
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Published in Journal of Mathematical Economics (1990) 19: 153-165

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Journal Article: Observability and optimality (1990)
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