The Theory of Incomplete Markets provides a unified framework for analyzing the real, financial, and monetary sectors of an economy. It describes an innovative theory that takes into account the fact that in order to coordinate their activities and share their risks, agents are forced by the...

This paper studies the equilibria of a stochastic OLG exchange economies consisting of identical agents living for two periods, and having the opportunity to trade a single infinitely-lived asset in constant supply. The agents have uncertain endowments and the stochastic process determining the...

Economists have long argued that loan contracts should be indexed to remove the risks arising from fluctuations in the purchasing power of money: indexation however while eliminating one risk, substitutes another, arising from fluctuations in relative prices of goods. We present a theoretical...

This paper derives the equilibrium of an infinite-horizon discrete-time CAPM economy in which agents have discounted expected quadratic utility functions. We show that there is an income stream obtainable by trading on the financial markets which best approximates perfect consumption smoothing...

This paper presents a model of stock market equilibrium with a finite number of corporations and studies its normative properties. Each firm is run by a manager whose effort is unobservable and influences the probabilities of the firm's outcomes. The Board of Directors of each firm chooses an...

This paper studies qualitative properties of an optimal contract in a multi-agent setting in which agents are subject to a common shock. We derive a necessary and sufficient condition for the optimal reward of an agent producing an output level y to be a decreasing (increasing) function of the...

An account is given of the principal concepts and results of general equilibrium with incomplete financial markets over a finite horizon, focusing on the generic existence, suboptimality and determinacy of equilibrium. Many results depend on the nature of the financial securities, whether they...