, Volume 54, Issue 2, pp 287-304
Date: 14 Sep 2012

Risk sharing and retrading in incomplete markets

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Abstract

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.