@article{e0ba5f7647d8429481e05b4aca36cfcb,
title = "General Equilibrium with Endogenously Incomplete Financial Markets",
abstract = "The present paper studies a class of general equilibrium economies with imperfectly competitive financial intermediaries and price-taking consumers. Intermediaries optimally choose the securities they issue and the bid-ask spread they charge. Financial intermediation is costly, and hence markets are endogenously incomplete. An appropriate equilibrium concept is developed, and existence is proved. Competitive equilibria for this class of economies display full indexation of securities payoffs and monetary neutrality even if intermediaries are restricted to issue {"}nominal{"} securities and financial markets turn out to be incomplete. This is in sharp contrast with the indeterminacy and non-neutrality results established in the literature for incomplete markets economies with exogenously given {"}nominal{"} securities.Journal of Economic LiteraturClassification Numbers: D52, G20.",
author = "Alberto Bisin",
note = "Funding Information: This paper is part of my Ph.D. Dissertation at the University of Chicago. Jos6 Scheinkman (the Chairman of the Committee) and Mike Woodford have been very supportive throughout this work. I also thank Gary Becket, In-Koo Cho, Gonzalo Contreras, Danilo Guaitoli, Chiaki Hara, Atsushi Kajii, Alessandro Lizzeri, Eric Maskin, Alfonso Mello Franco, Marco Pagano, Tito Pietra, Robert Townsend, and especially Pierre Andr~ Chiappori and Manuel Santos. This version owes very much to the comments of Jean-Marc Bonisseau, David Cass, Jayasri Dutta, Piero Gottardi, Roger Guesnerie, Guy Laroque, Frank Hahn, Herakles Polemarchakis, Tim Van Zandt, and especially Manuel Santos and a referee. I finally thank the many institutions where I presented this paper and the participants to the seminars. Special thanks go to Delta and MIT for providing me with great intellectual environments, and to the Review of Economic Studies for the opportunity to participate in its Tour. Financial support from the University of Chicago, Bradley Foundation, NSF, Ente Einaudi, and EEC is gratefully acknowledged. All remaining errors are mine.",
year = "1998",
month = sep,
doi = "10.1006/jeth.1998.2430",
language = "English (US)",
volume = "82",
pages = "19--45",
journal = "Journal of Economic Theory",
issn = "0022-0531",
publisher = "Academic Press Inc.",
number = "1",
}