1992 Reports

Arbitrage and Equilibrium in Economies with Infinitely Many Securities and Commodities

Chichilnisky, Graciela; Heal, Geoffrey M.

Welfare economics and finance have each evolved their own equilibrium concepts. In
welfare economics this is the concept of a competitive general equilibrium: in finance, it is the
absence of arbitrage opportunities. These concepts emerged independently and were initially
seen as quite distinct. Each plays an absolutely central role in its field, both in the theory and
in practical applications. In the 1980s researchers in both fields began to investigate the
connections between the two concepts.