Pareto Improving Price Regulation when the Asset Market is Incomplete

When the asset market is incomplete, competitive equilibria are constrained suboptimal, which provides a scope for pareto improving interventions. Price regulation can be such a pareto improving policy, even when the welfare effects of rationing are taken into account. An appealing aspect of price regulation is that it that it operates anonymously on market variables. Fix - price equilibria exist under weak assumptions. Such equilibria permit a competitive analysis of an economy with an incomplete asset market that is out of equilibrium. Arbitrage opportunities may arise: with three or more assets actively traded, an individual may hold an arbitrage portfolio at equilibrium. The local existence of fix- price equilibrium for prices that are almost competitive may fail for robust examples. Under necessary and sufficient conditions for the local existence of fix - price equilibria, pareto improving price regulation is generically possible.incomplete asset market;fix - price equilibria;Pareto improvement

Equilibrium and Arbitrage in Incomplete Asset Markets with Fixed Prices

At arbitrary prices of commodities and assets, fix-price equilibria exist under weak assumptions: endowments need not satisfy an interiority condition, utility functions need only satisfy a very weak monotonicity requirement, and the asset return matrix allows for redundant assets. Prices of assets may permit arbitrage. At equilibrium, though restricted through endogenously determined trading constraints, arbitrage possibilities may persists in an example, an individual holds an arbitrage portfolio

Identification of Pareto-improving policies : information as the real invisible hand

Finite sets of market data may not suffice to determine Pareto-improving policies

Nash–Walras equilibria

At a Nash–Walras equilibrium, individuals exchange commodities competitively, and, simultaneously, they interact strategically. Under standard assumptions, Nash–Walras equilibria exist; equilibrium profiles of actions are, typically, determinate but pareto suboptimal, though not constrained pareto suboptimal: a transfer of revenue need not suffice for a pareto improvement in welfare