Pareto Improving Price Regulation when the Asset Market Is Incomplete

Incomplete asset markets cause competitive equilibria to be constrained sub-optimal and provides scope for Pareto improving interventions. This paper examines how intervention in prices of spot market commodities may serve this purpose. We show that if fix-price equilibria behave sufficiently regular near Walrasian equilibria, Pareto improving price regulation is generically possible. We derive sufficient conditions for fix-price equilibria to be well-behaved in the neighborhood of a competitive equilibrium. An advantage of price regulation, contrasted with interventions in individuals' asset portfolios, is that it operates anonymously, on market variables.