Risk sharing and retrading in incomplete markets
Title: Risk sharing and retrading in incomplete markets
Citation: Economic Theory, 2013, Vol. 54, No. 2, pp. 287-304
ISSN: 1432-0479; 0938-2259
At a competitive equilibrium of an incomplete-markets economy agents’ marginal valuations for the tradable assets are equalized ex-ante. We characterize the finest partition of the state space conditional on which this equality holds for any economy. This leads naturally to a necessary and sufficient condition on information that would induce agents to retrade, if such information was to become publicly available after the initial round of trade.
First published on : October 2013
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