Generic inefficiency of equilibria in the general equilibrium model with incomplete asset markets and infinite time (Q1407766)

The referred paper offers an extension of the general equilibrium model in incomplete financial markets with infinite time-horizon. The suggested modification regards the economies in which the endowments and dividends are represented by time-invariant function depending on the shock, exclusively. The shocks are assumed to take only a finite number of different values. Then the endowments and dividends are restricted to a finite-dimensional space, and it is shown that for all Pareto efficient equilibria, the prices, portfolio-holdings and consumptions are restricted to a finite-dimensional set, even if the equilibrium consumption and asset prices themselves are variable. Further result regards the suboptimality under the assumption of an implicit debt constraint.