A Central-Planning Approach to Dynamic Incomplete-Market Equilibrium
36 Pages Posted: 21 Dec 2002
Date Written: December 13, 2002
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.
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