A Central-Planning Approach to Dynamic Incomplete-Market Equilibrium

36 Pages Posted: 21 Dec 2002

See all articles by Bernard Dumas

Bernard Dumas

INSEAD; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Pascal J. Maenhout

INSEAD - Finance

Date Written: December 13, 2002

Abstract

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.

Suggested Citation

Dumas, Bernard and Maenhout, Pascal J., A Central-Planning Approach to Dynamic Incomplete-Market Equilibrium (December 13, 2002). AFA 2003 Washington, DC Meetings. Available at SSRN: https://ssrn.com/abstract=331920 or http://dx.doi.org/10.2139/ssrn.331920

Bernard Dumas (Contact Author)

INSEAD ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 60 72 49 92 (Phone)
+33 1 60 72 40 45 (Fax)

HOME PAGE: http://www.insead.fr/~dumas/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Pascal J. Maenhout

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France

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