Notes on sequence economies, transaction costs, and uncertainty

A sequence economy is an economy with trade at every date and state. It is inessential if its equilibria coincide with those of the corresponding Arro w-Debreu economy. We examine some of the conditions for essentiality. (1) I f there are transaction costs, then even if all states of nature are spanne d by the securities, the economy is generically essential. (2) In the absen ce of transaction costs, we show by examples that spanning is neither neces sary nor sufficient for inessentiality, the former because some state disti nctions may be irrelevant, the latter because of possible multiple spot equ ilibria for a given state. (3) We speculate on the possibility that price-c ontingent securities might complete the markets and, more generally, on the idea of "endogenous" uncertainty. Journal of Economic Literature Classific ation Number: C62. (C) 1999 Academic Press.