Generic inefficiency of equilibria in the general equilibrium model with incomplete asset markets and infinite time

Felix Kubler*, Karl Schmedders

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

We consider a Lucas asset-pricing model with heterogeneous agents, exogenous labor income, and a finite number of exogenous shocks. Although agents are infinitely lived, endowments and dividends are time-invariant functions of the exogenous shock alone and are thus restricted to lie in a finite-dimensional space; genericity analysis can be conducted on sets of zero Lebesgue measure. When financial markets are incomplete, that is, there are fewer financial securities than shocks, we show that genetically in individual endowments all competitive equilibria are Pareto inefficient.

Original languageEnglish (US)
Pages (from-to)1-15
Number of pages15
JournalEconomic Theory
Volume22
Issue number1
DOIs
StatePublished - Aug 1 2003

Keywords

  • Heterogeneous agents
  • Incomplete markets
  • Inefficient equilibria

ASJC Scopus subject areas

  • Economics and Econometrics

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