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Strategic market games with a finite horizon and incomplete markets

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We study the Shapley-Shubik market game associated to an intertemporal economy with a finite horizon and incomplete markets. We demonstrate that, generically on the space of endowments, every strictly individually rational and constrained feasible stream of allocations can be decentralized as an interior subgame-perfect equilibrium. Thus we obtain a result akin to a perfect Folk theorem in a non-stationary intertemporal framework with finite horizon. A consequence is that, when markets are incomplete, imperfect competition may yield results that pareto-dominate the competitive equilibrium. Moreover, in our setup, strategic speculative bubbles may survive at interior subgame perfect equilibria. Finally, and this contrasts with the main message of the literature devoted to Shapley-Shubik games, "nice" strategic equilibria do not converge to competitive ones when the number of players tends to infinity.

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/inseadwp2001/2001-23.pdf

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Copyright INSEAD. All rights reserved