Risk sharing and retrading in incomplete markets
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- Gottardi, P. & Rahi, R. Econ Theory (2013) 54: 287. doi:10.1007/s00199-012-0717-z
At a competitive equilibrium of an incomplete-markets economy agents’ marginal valuations for the tradable assets are equalized ex-ante. We characterize the finest partition of the state space conditional on which this equality holds for any economy. This leads naturally to a necessary and sufficient condition on information that would induce agents to retrade, if such information was to become publicly available after the initial round of trade.