On the completeness of complete markets

Kirsten I. M. Rohde, P.J.J. Herings*

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

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Abstract

We reconsider the allocational invariance of equilibria to different formulations of market completeness. We identify the so-far neglected assumption of sophisticated behavior as being crucial. First, the Arrow-Debreu setting is considered, where markets do not reopen in the future. Second, sequentially complete markets are analyzed, where goods on the spot markets and all contingent one-period ahead commodities can be traded in every state. Finally, complete markets are analyzed, where all possible contingent commodities can be traded at every state. Preferences may be time-consistent or time-inconsistent. A distinction is made between naive and sophisticated behavior.

Original languageEnglish
Pages (from-to)171-201
Number of pages31
JournalEconomic Theory
Volume37
Issue number2
DOIs
Publication statusPublished - Nov 2008
Externally publishedYes

Keywords

  • time-inconsistency
  • competitive equilibrium
  • market completeness
  • allocational equivalence
  • EXPECTATIONS
  • PREFERENCES
  • EQUILIBRIUM
  • PLANS

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