Associate Professor of Accounting and Management Information Systems, University of British Columbia.
A Complete Analysis of Full Pareto Efficiency in Financial Markets for Arbitrary Preferences
Article first published online: 30 APR 2012
1985 The American Finance Association
The Journal of Finance
Volume 40, Issue 4, pages 1235–1243, September 1985
How to Cite
AMERSHI, A. H. (1985), A Complete Analysis of Full Pareto Efficiency in Financial Markets for Arbitrary Preferences. The Journal of Finance, 40: 1235–1243. doi: 10.1111/j.1540-6261.1985.tb02374.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
This paper provides a complete analysis of the necessary and sufficient conditions for financial markets to achieve fully Pareto-efficient allocation of aggregate wealth through trade in economies with arbitrary preferences. We show that full Pareto efficiency obtains only if the market structure of contingent claims spans the information partition of a minimal aggregate wealth statistic and a Halmos-Savage sufficient statistic for the beliefs of the traders. All the known allocation efficiency results in the literature due to Arrow, Hakansson, John, Ross, and others are unified by this result.