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RESEARCH PAPER NO. 876
HART EFFECT AND EQUILIBRIUM
IN INCOMPLETE MARKETS I
BY
ROBERTO C. RAIMONDO
MARCH 2003
Department of Economics. University of Melbourne. Melbourne Victoria 3010 Australia
In this paper I reconsider the problem
of the existence for GEI models. It
is well known that existence for this kind
of models can fail since there are bad spot
prices. Using tools from Algebraic
Geometry I show that the set of bad spot
prices is tipically empty if the information
tree, the number of secruities and the number
of tradable goods at each node satisfy a
well defined inequality. Even if such
inequality is not staisfied I show that
the set of bad spot price can be fully characterized
and described using an algorithm and I give
an universal bound for the cardinality of
this set. Moreover, using these results,
I prove that the equilibrium always exists
for all endowment profiles.
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