Implementing Arrow-Debreu Equilibria by Trading Infinitely-Lived Securities

Kevin Huang () and Jan Werner

No 1708, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

Abstract: We study the question of implementing Arrow-Debreu equilibrium allocations in infinite-time economy under uncertainty by sequential trading of infinitely-lived securities. The crucial aspect of implementation is the choice of feasibility constraints on agents' portfolio strategies. The main difficulty lies in the possibility of price bubbles in security markets. We derive an exact relation between Arrow-Debreu equilibrium allocations and sequential equilibrium allocations in security markets under two portfolio feasibility constraints: the wealth constraint, and the bounded borrowing constraint. We show that sequential equilibria with price bubbles correspond to Arrow-Debreu equilibria with income transfers.

Date: 2000-08-01
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Journal Article: Implementing Arrow-Debreu equilibria by trading infinitely-lived securities (2004)
Working Paper: Implementing Arrow-Debreu equilibria by trading infinitely-lived securities (2002)
Working Paper: Implementing Arrow-Debreu equilibria by trading infinitely lived securities
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