Using a standard frictionless, continuous time, and continuous trading stochastic economy with heterogeneous beliefs, the purpose of this paper is to provide sufficient conditions for the existence of competitive equilibrium in an incomplete asset market. A new approach to proving existence is...

We study competitiveness of financial markets in a one-period model, in which traders speculate on private information and hedge endowment shocks. Developing and fully characterizing a new measure of market competitiveness, we find that market becomes perfectly competitive if and only if the...

We show that debt is sustainable at a competitive equilibrium based solely on the reputation for repayment; that is, even without collateral or legal sanctions available to creditors. In an incomplete asset market, when the rate of interest falls recurrently below the rate of growth of the...