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Contracting over Prices

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  • Chatterji, S.
  • Ghosal, Sayantan

Abstract

We defi ne a solution concept, perfectly contracted equilibrium, for an intertemporal exchange economy where agents are simultaneously price takers in spot commodity markets while engaging in non-Walrasian contracting over future prices. In a setting with subjective uncertainty over future prices, we show that perfectly contracted equi- librium outcomes are a subset of Pareto optimal allocations. It is a robust possibility for perfectly contracted equilibrium outcomes to di er from Arrow-Debreu equilibrium outcomes. We show that both centralized banking and retrading with bilateral contracting can lead to perfectly contracted equilibria.

Suggested Citation

  • Chatterji, S. & Ghosal, Sayantan, 2013. "Contracting over Prices," SIRE Discussion Papers 2013-88, Scottish Institute for Research in Economics (SIRE).
    • Handle: RePEc:edn:sirdps:505
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    File URL: https://hdl.handle.net/10943/505
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    References listed on IDEAS

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    1. Ho-Mou Wu & Mordecai Kurz, 1996. "Endogenous uncertainty in a general equilibrium model with price contingent contracts (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(3), pages 461-488.
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    5. Kurz, Mordecai, 1994. "On Rational Belief Equilibria," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(6), pages 859-876, October.
    6. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
    7. Philippe Henrotte, 1996. "Construction of a state space for interrelated securities with an application to temporary equilibrium theory (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(3), pages 423-459.
    8. Green, Jerry R, 1973. "Temporary General Equilibrium in a Sequential Trading Model with Spot and Futures Transactions," Econometrica, Econometric Society, vol. 41(6), pages 1103-1123, November.
    9. Radner, Roy, 1972. "Existence of Equilibrium of Plans, Prices, and Price Expectations in a Sequence of Markets," Econometrica, Econometric Society, vol. 40(2), pages 289-303, March.
    10. Svensson, Lars E O, 1981. "Efficiency and Speculation in a Model with Price-Contingent Contracts," Econometrica, Econometric Society, vol. 49(1), pages 131-151, January.
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    Cited by:

    1. Chatterji, Shurojit & Kajii, Atsushi, 2023. "Decentralizability of efficient allocations with heterogeneous forecasts," Journal of Economic Theory, Elsevier, vol. 207(C).
    2. Shurojit Chatterji & Atsushi Kajii & Huaxia Zeng, 2018. "Intertemporal effiiency does not imply a common price forecast," KIER Working Papers 999, Kyoto University, Institute of Economic Research.
    3. Shurojit Chatterji & Atsushi Kajii & Huaxia Zeng, 2018. "Intertemporal efficiency does not imply a common price forecast: a leading example," KIER Working Papers 992, Kyoto University, Institute of Economic Research.

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    More about this item

    Keywords

    equilibrium; future prices; uncertainty; contracts;
    All these keywords.

    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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