Constrained Efficiency and Equilibrium Without Commitment

Victor Filipe Martins da Rocha (1, 2) , Yiannis Vailakis (3)

1 EESP - Sao Paulo School of Economics
2 CEREMADE - CEntre de REcherches en MAthématiques de la DEcision
3 Adam Smith Business School

We consider an infinite horizon economy where agents share income risks by trading a complete set of contingent claims but cannot commit to their promises. Allocations are restricted to be self-enforcing relative to autarchic reservation utilities. Under the assumption of uniform gains to trade, we characterize constrained Pareto efficiency, prove a constrained version of the Second Welfare Theorem and establish the existence of a constrained competitive equilibrium as defined by Kehoe and Levine (1993). Our results extend those in Bloise and Reichlin (2011) in several aspects.

Mots clés: Constrained Efficiency; Lack of Commitment; Default; Self-Enforcing Debt

Domaines: Economies et finances

Victor Filipe Martins da Rocha, Yiannis Vailakis. Constrained Efficiency and Equilibrium Without Commitment. 2014. ⟨hal-01097121v1⟩