On the completeness of complete markets
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 naïve and sophisticated behavior.
|Keywords||Allocational equivalence, Competitive equilibrium, Market completeness, Time-inconsistency|
|Persistent URL||dx.doi.org/10.1007/s00199-007-0291-y, hdl.handle.net/1765/15929|
Herings, P.J.J, & Rohde, K.I.M. (2008). On the completeness of complete markets. Economic Theory, 37(2), 171–201. doi:10.1007/s00199-007-0291-y