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Abstract

We present a general canonical model of simultaneous equilibrium on real and financial markets. The financial assets are real in that they commit to contingent delivery of vectors of real goods. We introduce a regularity condition on the asset structure which intuitively requires that there be enough tradable assets relative to the number of immediately succeeding contingencies at each date-event and establish a general equivalence theorem: generically the equilibrium allocations of a system of asset markets coincide with the equilibrium allocations of a system of Arrow-Debreu contingent markets if and only if the asset structure is regular. It follows from the theorem that Hart's two well-known examples of nonexistence and inefficiency of an asset market equilibrium are in a precise sense exceptional and atypical examples of the asset market model. The model covers a wide variety of financial markets including commodity futures markets and a stock market equilibrium over time.

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