Econometrica: Sep, 2019, Volume 87, Issue 5

Market Selection with Differential Financial Constraints

https://doi.org/10.3982/ECTA15328
p. 1693-1762

Ani Guerdjikova, John Quiggin

We analyze financial markets in which agents face differential constraints on the set of assets in which they can trade. In particular, the assets available to each agent span a partition of the state space that can be strictly coarser than the partition spanned by the assets available in the market. We first show that the existence of differential constraints has an impact on prices and allocations as compared to a complete financial market with unconstrained agents.