Risk sharing and retrading in incomplete markets
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.
KeywordsCompetitive equilibrium Incomplete markets Information Retrading
JEL ClassificationD52 D80
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