Arbitrage and the Existence of Competitive Equilibrium

Abstract

A general equilibrium model of markets for commodities and assets is considered. The author develops the notion of a price system that admits no arbitrage opportunity and demonstrates the fundamenta l role of this concept for the theory of the existence of a competiti ve equilibrium. A price system admits no arbitrage opportunity for a consumer if every bundle of desired commodities has a positive market value. The author proves that the existence of a price system that a dmits no arbitrage opportunity for all consumers is sufficient for th e existence of an equilibrium. Copyright 1987 by The Econometric Society.

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