Financial Equilibrium with Differential Information in a Production Economy: A Basic Model of 'Generic' Existence

Lionel Boisdeffre
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Lionel Boisdeffre: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour

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Abstract: We study the existence of equilibrium in two-period production economies, where asymmetrically informed agents exchange securities, on incomplete financial markets, and commodities, on spot markets, with a perfect foresight of future prices. Extending our pure-exchange existence theorems, we show that equilibria exist for an open dense set of economies, parametrized by assets' payoffs, and for all economies, whose assets are nominal or numeraire. The model covers all types of private ownership - sole proprietorship, partnership or corporations - and all sectors consistent with competition, i.e., with non-increasing returns to scale. It is a step towards proving existence of equilibria in stochastic production economies and the full existence of sequential equilibria with production, when perfect price foresight fails to prevail.

Keywords: Sequential equilibrium; Production economies; Perfect foresight; Existence; Rational expectations; Financial markets; Asymmetric information; Arbitrage (search for similar items in EconPapers)
Date: 2017-09
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