AGGREGATION, EFFICIENCY AND MUTUAL FUND SEPARATION IN INCOMPLETE MARKETS

This paper studies the conditions for aggregation, portfolio separatio n and effective completeness of competitive allocations in general equ ilibrium models with incomplete markets where agents have general pref erence and endowment distributions, We show that these properties are distinct. Demands may aggregate yet may fail to exhibit fund separatio n and conversely. Fund separation implies effective completeness while aggregation does not, The implications of these properties for the st ructure of equilibria are discussed, and generalizations of the CAPM, the consumption CAPM and the CAPM with nonmarketed wealth emerge from the analysis.