HEC Research Papers Series,
HEC Paris

Abstract: Extrinsic uncertainty is effective at a competitive equilibrium. This is generically the case if commodities are exchanged indirectly, through the exchange of assets, spot markets are inoperative, while the asset market is incomplete.

The structure of payoffs of assets may allow for non - trivial allocations invariant with respect to the extrinsic uncertainty, and the economy with a complete asset market may well have a globally unique competitive equilibrium.

Competitive equilibrium allocations are constrained pareto optimal : effective extrinsic uncertainty is not disadvantageous, given the restricted set of assets available.

Inoperative spot markets have a natural interpretation in economies with multiple periods: assets cannot be retraded.

Keywords: Extrinsic uncertainty; competitive equilibrium

JEL-codes: D50; D52; D60; D84

12 pages, January 1, 2000

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