Pareto Improving Price Regulation when the Asset Market Is Incomplete

P.J.J. Herings, H.M. Polemarchakis

Research output: Working paper / PreprintWorking paper

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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.
Original languageEnglish
Place of PublicationMaastricht
PublisherMaastricht University School of Business and Economics
Number of pages22
Publication statusPublished - 1 Jan 2003

Publication series

SeriesMETEOR Research Memorandum

JEL classifications

  • d45 - "Rationing; Licensing"
  • d52 - Incomplete Markets
  • d60 - Welfare Economics: General


  • incomplete asset market
  • fix-price equilibria
  • Pareto improvement

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