Contracting over Prices

We define a solution concept, perfectly contracted equilibrium, for an intertempo- ral exchange economy where agents are simultaneously price takers in spot commod- ity markets while engaging in ecient, non-Walrasian contracting over future prices. Without requiring that agents have perfect foresight, we show that perfectly contracted equilibrium outcomes are a subset of Pareto optimal allocations. It is a robust possi- bility for perfectly contracted equilibrium outcomes to differ from Arrow-Debreu equi- librium outcomes. We show that both centralized banking and retrading with bilateral contracting can lead to perfectly contracted equilibria.