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Social and Behavioral Sciences Commons

Open Access. Powered by Scholars. Published by Universities.®

1989

Yale University

Incomplete markets

Articles 1 - 3 of 3

Full-Text Articles in Social and Behavioral Sciences

An Introduction To General Equilibrium With Incomplete Asset Markets, John Geanakoplos Jun 1989

An Introduction To General Equilibrium With Incomplete Asset Markets, John Geanakoplos

Cowles Foundation Discussion Papers

I survey the major results in the theory of general equilibrium with incomplete asset markets. I also introduce the papers in this volume and offer a few suggestions for further work.


The Capital Asset Pricing Model As A General Equilibrium With Incomplete Markets, John Geanakoplos, Martin Shubik May 1989

The Capital Asset Pricing Model As A General Equilibrium With Incomplete Markets, John Geanakoplos, Martin Shubik

Cowles Foundation Discussion Papers

We recast the capital asset pricing model (CAPM) in the broader context of general equilibrium with incomplete markets (GEI). In this setting we give proofs of three properties of CAPM equilibria: they are efficient, asset prices lie on a “security market line,” and all agents hold the same two mutual funds. The first property requires a riskless asset, the latter two do not. We show that across all GEI only one of these three properties of equilibrium is generally valid: asset prices depend on covariances, not variances. We extend CAPM to many consumption goods in such a way that all …


Liquidity And Bankruptcy With Incomplete Markets: Pure Exchange, Pradeep Dubey, John Geanakoplos Feb 1989

Liquidity And Bankruptcy With Incomplete Markets: Pure Exchange, Pradeep Dubey, John Geanakoplos

Cowles Foundation Discussion Papers

We enlarge the standard model of general equilibrium with incomplete market (GEI), to incorporate liquidity constraints as well as the possibility of bankruptcy and default. A new equilibrium results, which we abbreviate GELBI (general equilibrium with liquidity, bankruptcy and incomplete markets). When the supply of bank money and bankruptcy/default penalties are taken sufficiently high (the high regime), GEI occur as GELBI. But outside the high regime many new phenomena appear: money is (almost) never neutral, it has positive value and its optimum quantity is often finite; bankruptcy and default not only occur in equilibrium but can have welfare improving consequences …