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.
|Series||METEOR Research Memorandum|
- d45 - "Rationing; Licensing"
- d52 - Incomplete Markets
- d60 - Welfare Economics: General
- incomplete asset market
- fix-price equilibria
- Pareto improvement