Two-period economies with price-contingent deliveries
- 366 Downloads
An economy with ex ante markets for future delivery contingent on ex post spot market prices is considered. Since spot prices are publicly observed ex post, this framework bypasses the enforcement problems that may arise as a result of differential information about states of nature. Generically, the equilibria of an economy with price-contingent deliveries coincide with the equilibria of the corresponding economy with state-contingent deliveries. However, replacing state-contingent deliveries with price-contingent deliveries may generate additional equilibria and/or remove some equilibria. The perfect foresight hypothesis is crucial to avoid a severe problem of nonexistence of equilibrium.
KeywordsGeneral equilibrium Price-contingent deliveries Differential information
JEL ClassificationC62 C72 D51 D82
The author thanks participants in the 2014 EWGET in honor of Bernard Cornet, an anonymous referee, and the Editor (Nicholas C. Yannelis) for useful comments and suggestions. Financial support from FEDER and Fundação para a Ciência e Tecnologia (research grant PTDC/IIM-ECO/5294/2012) is gratefully acknowledged.
- Arrow, K.J.: The role of securities in the optimal allocation of risk-bearing. Econometrie [translated and reprinted in Rev. Econ. Stud. 31(2), 91–96 (1964)] (1953)Google Scholar
- Chichilniski, G.: Existence and optimality of a general equilibrium with endogenous uncertainty. In: Chichilniski, G. (ed.) Chapter 5 of “Markets, Information, and Uncertainty: Essays in Economic Theory in Honor of Kenneth J. Arrow”. Cambridge University Press, Cambridge (1999)CrossRefGoogle Scholar
- Chichilnisky, G., Dutta, J., Heal, G.M.: Price uncertainty and derivative securities in a general equilibrium model. Discussion paper no. 643, Columbia University, Department of Economics (1992)Google Scholar
- Debreu, G.: Theory of Value. Wiley, New York (1959)Google Scholar
- Dierker, E.: Regular economies. In: Arrow, K.J., Intriligator, M.D. (eds.) Handbook of Mathematical Economics, vol. 2, Chapter 17. North-Holland, Amsterdam (1982)Google Scholar
- Huang, P., Wu, H.-M.: Market equilibrium with endogenous price uncertainty and options. In: Chichilnisky, G. (ed.) Chapter 6 of “Markets, Information, and Uncertainty: Essays in Economic Theory in Honor of Kenneth J. Arrow”. Cambridge University Press, Cambridge (1999)Google Scholar
- Hurwicz, L.: On informationally decentralized systems. In: McGuire, M., Radner, R. (eds.) Decision and Organization. North Holland, Amsterdam (1972)Google Scholar
- Magill, M., Quinzii, M.: Theory of Incomplete Markets. MIT Press, Cambridge (1996)Google Scholar
- Mas-Colell, A.: The Theory of General Economic Equilibrium: A Differentiable Approach. Cambridge University Press, Cambridge (1985)Google Scholar