This article uses Taylor series expansions and the assumption of small risks to derive a comoment criterion that firms should maximize so that the resulting equilibrium is Pareto optimal. This is done in two models of production under uncertainty: the state-of-nature  <formula format="inline"> <file name="iere_599_mu1.gif" type="gif" /> </formula> model in which the...

This paper studies the existence and uniqueness of equilibrium in a monetary model in which the fiscal policy is Ricardian. The innovation of the paper is to model agents’ expectations as endogenous probabilities which are determined in equilibrium. Since economies with a Ricardian fiscal...

A stock market is a mechanism by which the ownership and control of firms is determined through the trading of securities. It is on this market that many of the major risks faced by society are shared through the exchange of securities and the production decisions that influence the present and...

This paper extends the general equilibrium model with incomplete markets to an open-ended future, thereby providing a natural setting for analyzing problems in macroeconomics. Two concepts of equilibrium are defined that prevent agents from entering into Ponzi schemes: the first is based on debt...

This paper exhibits a class of infinite-horizon economies with incomplete markets (GEI) for which the equilibrium can be explicitly derived. We show that if agents have preference orderings represented by expected discounted quadratic utilities and if their endowments are tradable, then the...

This paper uses the framework of an OLG economy with three-period lived agents in which a durable good serves as collateral for loans, to study the effect of an unanticipated income shock when the economy is in a steady state equilibrium. We focus on the consequence of default on loans when the...

This paper studies a simple OLG model with production under the assumption that capital investment is completely irreversible: installed capital cannot be transformed back into consumption good nor transferred from one firm to another. Since firms cannot be dismantled at each generational change...

This paper was begun during a visit at the Cowles Foundation in Fall 2000 and revised during a visit in Fall 2002: Michael Magill and Martine Quinzii are grateful for the stimulating environment and the research support provided by the Cowles Foundation. We are also grateful to Bob Shiller for...