A Simple Model of Useless Speculation
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NBER Working Paper No. 3513
Issued in November 1990
NBER Program(s): ITI IFM
The paper presents a general equilibrium model of a pure exchange economy with stochastic endowment in which speculation is profitable and stabilizes prices, but is useless from a welfare point of view. Reconciling the Siegel paradox with the theory of incomplete markets we show that banning speculation by closing the forward exchange market may increase social welfare.
Published: C and S working Paper , December 1995, Japanese Economic Review 51, (2000), pp. 85-95.
This paper is available as PDF (260 K) or DjVu (176 K) (Download viewer) or via email.
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