‘Incomplete markets’ describes a market structure in which there are effective constraints on which bundles of goods may be exchanged with each other. When incompleteness arises from markets that are sequentially segmented, some of the basic properties of general equilibrium are affected. First, equilibrium may not exist even under the usual regularity assumptions. Second, allocations may not be Pareto optimal, even after the limitations imposed by the market structure are taken into account. Third, if securities are denominated in nominal values, the equilibrium allocation is generally not locally unique.
KeywordsArrow–Debreu markets Complete markets Demand functions Existence of equilibrium Incomplete markets Indeterminacy of equilibrium Local uniqueness of equilibrium Marginal rate of substitution Spot markets Uncertainty
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