Strategic market games with a finite horizon and incomplete markets |
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Authors: | Email author" target="_blank">Ga?l?GiraudEmail author Sonia?Weyers |
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Institution: | (1) CNRS, BETA UMR 7522 Université Louis Pasteur and CERMSEM, Université Paris-1, FRANCE;(2) INSEAD, Fontainebleau Cedex, 77305, FRANCE |
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Abstract: | Summary. We study a strategic market game associated to an intertemporal economy with a finite horizon and incomplete markets. We demonstrate that generically, for any finite number of players, every sequentially strictly individually rational and default-free stream of allocations can be approximated by a full subgame-perfect equilibrium. As a consequence, imperfect competition may Pareto-dominate perfect competition when markets are incomplete. Moreover - and this contrasts with the main message conveyed by the market games literature - there exists a large open set of initial endowments for which full subgame-perfect equilibria do not converge to
-efficient allocations when the number of players tends to infinity. Finally, strategic speculative bubbles may survive at full subgame-perfect equilibria.Received: 24 January 2002, Revised: 21 February 2003, JEL Classification Numbers:
C72, D43, D52. Correspondence to: Gaël GiraudWe thank Tim Van Zandt for his comments. |
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Keywords: | Strategic market games Folk theorem Incomplete markets Bubbles |
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