Contracting over Prices

Shurojit Chatterji and Sayantan Ghosal

No 36-2012, Working Papers from Singapore Management University, School of Economics

Abstract: We define a solution concept, perfectly contracted equilibrium, for an intertempo- ral exchange economy where agents are simultaneously price takers in spot commod- ity markets while engaging in ecient, non-Walrasian contracting over future prices. Without requiring that agents have perfect foresight, we show that perfectly contracted equilibrium outcomes are a subset of Pareto optimal allocations. It is a robust possi- bility for perfectly contracted equilibrium outcomes to differ from Arrow-Debreu equi- librium outcomes. We show that both centralized banking and retrading with bilateral contracting can lead to perfectly contracted equilibria.

Keywords: equilibrium; future prices; uncertainty; contracts (search for similar items in EconPapers)
JEL-codes: D5 D70 D72 D84 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2012-12
New Economics Papers: this item is included in nep-mic and nep-sea
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Published in SMU Economics and Statistics Working Paper Series

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Related works:
Working Paper: Contracting over Prices (2013)
Working Paper: Contracting over Prices (2013)
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