The first theorem of welfare economics rests on the assumption that individuals have neither price-making nor market-making capacities. The authors offer a revision in which individuals have such capacities. The revision emphasizes two keys for market efficiency: the need to align private...

This paper argues that default plays an important positive role in the economy. If markets are incomplete and traders are only able to enter into contracts that they will be able to execute regardless of future events, contingent contracting may be severely restricted. Moreover, opening new...