Document Type

Discussion Paper

Publication Date


CFDP Number


CFDP Pages



In an incomplete asset market, firms assign values to investment plans by projecting their payoffs on the span of the payoffs of marketed assets; equivalently, firms employ the Capital Asset Pricing Model. This is a criterion that does not require firms to possess information, such as the marginal valuation of revenue across date – events by shareholders, which is not observable; rather, it is based on information revealed by the prices and payoffs of marketed assets. Under standard assumptions, competitive equilibria exist. But, competitive equilibrium allocations need not satisfy a condition of constrained pareto optimality that recognizes the incompleteness of the asset market; and, even in the absence of nominal assets, competitive equilibrium allocations are generically indeterminate – they are determinate if firm consider the commodity payoffs of shares

Included in

Economics Commons