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Pareto Improving Price Regulation when the Asset Market is Incomplete

  • P. Jean-Jacques Herings
  • Herakles Polemarchakis
Chapter
  • 311 Downloads
Part of the Studies in Economic Theory book series (ECON.THEORY, volume 25)

Summary

Incomplete asset markets cause competitive equilibria to be constrained suboptimal and provides scope for Pareto improving interventions. In this paper, we examine how intervention in prices in asset or spot commodity markets serves this purpose. We show that, if fix-price equilibria behave sufficiently regularly near Walrasian equilibria, Pareto improving price regulation is generically possible. An advantage of price regulation, contrasted with interventions in individuals’ asset portfolios, is that it operates anonymously, on market variables.

Key words

Incomplete asset market Fix-price equilibria Pareto improvement 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2006

Authors and Affiliations

  • P. Jean-Jacques Herings
    • 1
  • Herakles Polemarchakis
    • 2
  1. 1.Department of EconomicsUniversiteit MaastrichtMaastrichtThe Netherlands
  2. 2.Department of EconomicsBrown UniversityUSA

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