SFB 303 Discussion Paper No. A-411

Author: Brown, Donald J. Peter DeMarzo, and B. Curtis Eaves
Title: Computing Equilibria in the GEI Model
Abstract: Existence of equilibrium with incomplete markets is problematic because demand functions are typically not continuous. Discontinuities occur at prices for which an available asset suddenly becomes redundant. We show that this discontinuity disappears if we allow an agent in the economy to introduce a new asset when such redundancies occur. This enables us to prove existence in the GEI model using a standard path-following argument. In contrast with the previous literature, our approach does not require the introduction of abstract manifolds such as the Grassmannian. Hence, available algorithms for path-following in R^K can be applied to compute equilibria in the GEI case.
Keywords: General equilibrium theory, incomplete markets, path following, homotopy
Creation-Date: July 1993
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