Generic inefficiency of equilibria in the general equilibrium model with incomplete asset markets and infinite time (Q1407766): Difference between revisions

The referred paper offers an extension of the general equilibrium model in incomplete financial markets with infinite time-horizon. The suggested modification regards the economies in which the endowments and dividends are represented by time-invariant function depending on the shock, exclusively. The shocks are assumed to take only a finite number of different values. Then the endowments and dividends are restricted to a finite-dimensional space, and it is shown that for all Pareto efficient equilibria, the prices, portfolio-holdings and consumptions are restricted to a finite-dimensional set, even if the equilibrium consumption and asset prices themselves are variable. Further result regards the suboptimality under the assumption of an implicit debt constraint.