We define a solution concept, perfectly contracted equilibrium, for an intertemporal exchange economy where agents are simultaneously price takers in spot commodity markets while engaging inefficient, 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 possibility for perfectly contracted equilibrium outcomes to differ from Arrow-Debreu equilibrium outcomes. We show that both centralized banking and retrading with bilateral contracting can lead to perfectly contracted equilibria.
equilibrium, future prices, uncertainty, contracts
Economic Theory | Finance
Singapore Management University Economics and Statistics Working Paper Series, Paper No. 36-2012
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CHATTERJI, Shurojit and GHOSAL, Sayantan.
Contracting over Prices. (2012). 1-39. Research Collection School Of Economics.
Available at: https://ink.library.smu.edu.sg/soe_research/1417
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