Constrained suboptimality in incomplete markets: a general approach and two applications

Alessandro Citanna, Atsushi Kajii and Antonio Villanacci
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Alessandro Citanna: GSIA, Carnegie Mellon University - CMU - Carnegie Mellon University [Pittsburgh]
Antonio Villanacci: UniFI - Università degli Studi di Firenze = University of Florence = Université de Florence

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Abstract: In this paper we re-examine generic constrained suboptimality of equilibrium allocations with incomplete numeraire asset markets. We provide a general framework which is capable of resolving some issues left open by the previous literature, and encompasses many kinds of intervention in partially controlled market economies. In particular, we establish generic constrained suboptimality, as studied by Geanakoplos and Polemarchakis, even without an upper bound on the number of households. Moreover, we consider the case where asset markets are left open, and the planner can make lump-sum transfers in a limited number of goods. We show that such a perfectly anticipated wealth redistribution policy, though consistent with the assumed incomplete financial structure, is typically effective.

Keywords: incomplete markets; Constrained suboptimality (search for similar items in EconPapers)
Date: 1998-04
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Citations: View citations in EconPapers (95)

Published in Economic Theory, 1998, Vol.11,n°3, pp.495-521. ⟨10.1007/s001990050199⟩

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Journal Article: Constrained suboptimality in incomplete markets: a general approach and two applications (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00479390

DOI: 10.1007/s001990050199

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