Pooling and endogenous market incompleteness

Alessandro Citanna, Antonio Villanacci

Research output: Contribution to journalArticlepeer-review


We study a financial market economy with a continuum of borrowers and pooling of borrowers' promises. Under these conditions and in the absence of designing costs, utility-maximizing decisions of price-taking borrowers may lead to financial market incompleteness. Parametrizing equilibria through the borrowers' no-arbitrage beliefs, we link expectations to the financial market structure. Markets are complete if and only if borrowers' beliefs are homogeneous. Price-taking behavior causes a coordination problem which in turn yields indeterminacy and inefficiency of equilibrium allocations.

Original languageEnglish (US)
Pages (from-to)549-560
Number of pages12
JournalEconomic Theory
Issue number3
StatePublished - Oct 2004


  • Endogenous asset formation
  • Financial pooling
  • Incomplete financial markets
  • Indeterminacy of equilibria

ASJC Scopus subject areas

  • Economics and Econometrics


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