Indeterminacy of Competitive Equilibrium in Incomplete Market Structures with Financial Assets as an Extreme Form of Market Coordination Breakdown

Market coordination breakdowns can be formulated in terms of Incomplete Market Structures, whatever is the assumption made about market power (monopoly or competition). When the assumption of competition is made, and financial assets generate an incomplete market structure, there are, generically, an infinite number of equilibria. It is shown that after embedding the model of incomplete markets in a more general model based on the absence of double coincidence of wants, a game theoretic concept of equilibrium, like the Core, allows us to prove an equivalence theorem, i.e. to show that indeterminacy is caused by the fact that the returns of financial assets have no direct utility. The Geneva Papers on Risk and Insurance Theory (1990) 15, 81–109. doi:10.1007/BF01498462