Economic Dynamics and General Equilibrium

The developments in economic theory in the 1950s served to pinpoint important underlying assumptions in the study of market institutions. The conflict between observed institutions - spot markets for commodities, financial markets - and the benchmark interpretation - forward markets for commodities, allowing all trade to take place at a single point in time, became apparent. This led to the introduction of new equilibrium concepts; temporary equilibria, spot-market equilibria and monetary equilibria. The emphasis was on the possibilities to transfer purchasing power over time or over states using spot markets involving assets or money. This book focuses on the developments in the theory of incomplete markets and overlapping generations economies where income transfers over time or across states are restricted either by available assets or by the infeasibility of contracts with unborn generations. It bridges the gap between standard textbooks on microeconomics and more advanced expositions.