A Central-Planning Approach to Dynamic Incomplete-Market Equilibrium
INSEAD; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)
Pascal J. Maenhout
INSEAD - Finance
December 13, 2002
AFA 2003 Washington, DC Meetings
We show that a central planner with two selves, or two "pseudo welfare functions", are sufficient to deliver a market equilibrium that prevails among any (finite) number of heterogeneous individual agents acting competitively in an incomplete financial market. Furthermore, we are able to exhibit a recursive formulation of the two-central planner problem. In that formulation, every aspect of the economy can be derived one step at a time, by a process of backward induction as in dynamic programming.
Number of Pages in PDF File: 36working papers series
Date posted: December 21, 2002
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