General Equilibrium Analysis

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This project continues research by the investigator in four areas of general equilibrium analysis: (1) the existence and optimality of competitive equilibrium in markets with an infinite number of commodities; (2) the spanning and pricing of derivative assets, with call options in markets with infinite state spaces; (3) the allocation of resources in market economies with increasing returns to scale in production; and (4) general equilibrium restrictions on market prices and income distributions. This research provides a more rigorous and general theory for studying incomplete financial markets, macroeconomics, economic growth and other important areas of economics. More specifically, the contributions under this grant for these four areas consists of (1) proving the existence of equilibria in two-period and three-period incomplete markets general equilibrium models, where the state space is infinite, for both the cases of a finite and infinite number of marketed financial assets; (2) providing a constructive existence proof of pseudo-equilibria in general equilibrium models with incomplete asset markets; (3) establishing the existence of a two-part pricing equilibrium with imperfect information and examining its optimality; and (4) extending the Brown-Matzkin model of revealed equilibrium analysis to accommodate random utility functions or errors in measurement.