What is it about?

A general equilibrium framework is employed to illustrate how the advent of trading in new securities, about which an "insider" has private information, might cause a collapse of prevailing security markets. Roughly, securities that allow the insider to hedge his portfolio risk interfere with one other, and in some cases, so much so that these securities cannot simultaneously trade in any equilibrium.

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Why is it important?

The theory of market failure is well known for single assets. This paper is the first which generalized the theory to a portfolio of assets, and characterized the point where the entire system fails.

Perspectives

I learnt a lot of "high game theory" when writing this paper.

Professor Utpal Bhattacharya
Hong Kong University of Science and Technology

Read the Original

This page is a summary of: Destructive Interference in an Imperfectly Competitive Multi-Security Market, Journal of Economic Theory, February 1995, Elsevier,
DOI: 10.1006/jeth.1995.1005.
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