This paper establishes that when there is not a complete set of markets but more than one commodity the stock market equilibrium will not in general be a constrained Pareto optimum. The economy will lack both the property of exchange and production efficiency. Necessary conditions which must be satisfied if the economy is to be a constrained Pareto optimum for all technologies are derived; if all individuals have identical, homothetic indifference maps, then either there must be unitary price elasticities (so there is no effective risk) or all individuals must have the same degree of risk aversion (so there is no trade on the stock market).

This paper shows that, in the absence of a complete set of risk markets, prices provide incorrect signals for guiding production decisions. Even if all individuals have rational expectations concerning the distribution of prices which will prevail on the market next period, the market allocation is, in general, not a constrained Pareto optimum. Essentially the only conditions under which, for all technologies, the market equilibrium is a constrained Pareto optimum are those in which risk markets are redundant. We derive the necessary and sufficient conditions for redundancy of risk markets, which turn out to be extremely restrictive.

This paper shows that, in the absence of a complete set of risk markets, prices provide incorrect signals for guiding production decisions. Even if all individuals have rational expectations concerning the distribution of prices which will prevail on the market next period, the market allocation is, in general, not a constrained Pareto optimum. Essentially the only conditions under which, for all technologies, the market equilibrium is a constrained Pareto optimum are those in which risk markets are redundant. We derive the necessary and sufficient conditions for redundancy of risk markets, which turn out to be extremely restrictive.

In this article the authors present a general set of arguments applicable to both competitive and noncompetitive environments, to situations where all the terms of the contract are determined in an optimal way, as well as to situations where many of the terms are specified institutionally. Much of the formal analysis of this article focuses on showing how the landlord, by altering, say, the terms at which he makes loans available to his tenants, not only can induce the tenant to borrow more but, more importantly, can induce the tenant to work harder or to undertake projects which are more to the liking of the landlord. Section I of this article examines interlinked credit and tenancy contracts; section II examines interlinked marketing and tenancy contracts; section III points out the possible interlinking between labor contracts and consumption goods markets; and section IV presents the different equilibrium frameworks discussed in this article, that is, monopoly, monopsony, competition, and equilibria with surplus labor.

The article examines equilibrium in a competitive market in which the mythical auctioneer is absent and information is costly to gather. As a result, individuals may not be perfectly informed about prices or qualities of what is being sold. According to the author, equilibrium in such markets may differ markedly from the one conventionally studied by neoclassical theory. In particular, the only market equilibrium may be characterized by price dispersion for a homogeneous commodity, the law of the single price does not obtain. The article illustrates this with a model in which all individuals are identical and in which there is no exogenous source of noise, no external disturbances to the market, which have to be equilibrated. In the model, although all individuals have identical preferences and incomes and all firms have identical technologies, some firm charge high prices and others charge low prices. High-price stores earn a larger profit per sale, but make fewer sales. Equilibrium entails equal profits for two kinds of stores, that is, the lower volume of high-price stores exactly compensates for the higher profit per sale. The model that is developed by authors is of interest not only for the insight that it provides into the nature of price dispersion in the economy, but also because it provides at least a partial explanation of some aspects of retailing which otherwise would be difficult to explain.

The article presents a reply to the comments of economist Richard Cothren on a paper related to efficient market theory written by the authors. According to the author Cothren's assertion that the authors incorrectly derived an informed trader's risky asset demand function is false. They permitted borrowing and short selling. For this reason there is no nonnegativity constraint on a trader's holdings of risky or risk-free assets. A trader's initial wealth is not the limit on the value of the risky assets that he can purchase. The trader can borrow, and in so doing finance a large purchase of risky assets. The goal of their paper was to show that when information is costly, a perfectly competitive equilibrium will not exist which completely transmits the informed traders' information to uninformed traders. It would have been trivial to prove that constraints on borrowing, or on short sales, prevent perfect arbitrage from occurring. They proved a more interesting result, which is that even in the absence of constraints on borrowing or short sales, markets cannot be fully arbitraged, when information about the arbitrage opportunity is costly.

This paper examines the interactions between market structure and resource allocation over time when there is endogenous technical progress. The structures considered are a planned economy, pure monopoly, and competition with patent rights. In an efficient allocation the date of invention coincides with the date of innovation (the date at which technology is used). This is also true with a pure monopoly, but monopoly retards technical progress relative to the efficient level. Competition for patents rights to a new technology results in excessively rapid technical progress if the resource endowment of the economy is sufficiently large. Also, competition may lead to “sleeping patents” where invention strictly precedes the date of innovation.

This paper analyzes the effect of commodity price stabilization on producers and consumers, both in the short run, and in the long run, when producers have adjusted their production decisions to take account of the change in the price distribution. We derive conditions under which (a) both producers and consumers may be better off; and (b) both producers and consumers may be worse off. Moreover, we show that the long-run effects may differ not only quantitatively but also qualitatively from the short-run effects. The anomalous results may occur even with reasonable assumptions concerning production functions and utility functions of producers and consumers.