Creator: Prescott, Edward C. and Townsend, Robert M., 1948- Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 203 Abstract:
General competitive analysis is extended to cover a dynamic, pure-exchange economy with privately observed shocks to preferences. In the linear, infinite-dimensional space containing lotteries we establish the existence of optima, the existence of competitive equilibria, and that every competitive equilibrium is an optimum. An example illustrates that rationing and securities with contrived risk have an equilibrium interpretation.
Keyword: Pure exchange, Lotteries, and Competitive equilibria Subject (JEL): D82 - Information, knowledge, and uncertainty - Asymmetric and private information and D51 - General equilibrium and disequilibrium - Exchange and production economies
Creator: Townsend, Robert M., 1948- and Wallace, Neil. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 209 Abstract:
We use a model of pure, intertemporal exchange with spatially and information-ally separated markets to explain the existence of private securities which circulate and, hence, play a prominent role in exchange. The model, which utilizes a perfect foresight equilibrium concept, implies that a Schelling-type coordination problem can arise. It can happen that the amounts of circulating securities that are required to support an equilibrium and that are issued at the same time in informationally separated markets must satisfy restrictions not implied by individual maximization and market clearing in each market separately.
Keyword: Trade, Schelling pure coordination game, and Debts Subject (JEL): D51 - General equilibrium and disequilibrium - Exchange and production economies and G14 - General financial markets - Information and market efficiency ; Event studies