Skip to main content

Core and equilibrium in incomplete markets


The classical foundation of general equilibrium analysis by the cooperative concept of the core has been extended to an economy with incomplete trading possibilities. This has been accomplished by restricting the exchange possibilities of coalitions of traders in accordance with the available market structure. However, compared with the classical result, the present foundation of rational expectations equilibria may appear much weaker. The reason is that in reality consumers may sign contracts which are more complex than the existing market structure. Therefore, it may happen that prices cannot decentralize all cooperative transactions by markets, in spite of perfect competition. With an incomplete set of markets, therefore, a cooperative exchange of commodities by individual contracts may coexist with trading in non-cooperative, competitive markets.

This is a preview of subscription content, access via your institution.


  • K. J. Arrow (1964): The Role of Securities in the Optimal Allocation of Risk Bearing, Review of Economic Studies31, pp. 91–96.

    Google Scholar 

  • K. J. Arrow and A. C. Enthoven (1961): Quasi-concave Programming, Econometrica29, pp. 779–800.

    Google Scholar 

  • R. J. Aumann (1964): Markets with a Continuum of Traders, Econometrica32, pp. 39–50.

    Google Scholar 

  • G. Debreu (1959): Theory of Value, Wiley, New York.

    Google Scholar 

  • D. Gale (1978): The Core of a Monetary Economy without Trust, Journal of Economic Theory19, pp. 456–491.

    Google Scholar 

  • D. Gale (1981): Improving Coalitions in a Monetary Economy, Review of Economic Studies48, pp. 356–384.

    Google Scholar 

  • S. J. Grossman (1977): A Characterization of the Optimality of Equilibrium in Incomplete Markets, Journal of Economic Theory15, pp. 1–15.

    Google Scholar 

  • O. Hart (1975): On the Optimality of Equilibrium when Markets are Incomplete, Journal of Economic Theory11, pp. 418–443.

    Google Scholar 

  • W. Hildenbrand (1974): Core and Equilibria of a Large Economy, Princeton, N. J.

  • R. Radner (1972): Existence of Equilibrium of Plans, Prices and Price Expectations in a Sequence of Markets, Econometrica40, pp. 289–303.

    Google Scholar 

  • R. Repullo (1982): The Core of an Economy with Transaction Costs, Discussion Paper, London School of Economics.

Download references

Author information

Authors and Affiliations


Additional information

I wish to thank Martin Hellwig for helpful comments and suggestions. Of course, I remain responsible for all shortcomings of the paper.

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Bester, H. Core and equilibrium in incomplete markets. Zeitschr. f. Nationalökonomie 44, 255–266 (1984).

Download citation

  • Received:

  • Revised:

  • Issue Date:

  • DOI: