A Simple Model of Useless Speculation
17 Pages Posted: 28 Dec 2006 Last revised: 8 Aug 2022
Date Written: November 1990
Abstract
The paper presents a general equilibrium model of a pure exchange economy with stochastic endowment in which speculation is profitable and stabilizes prices, but is useless from a welfare point of view. Reconciling the Siegel paradox with the theory of incomplete markets we show that banning speculation by closing the forward exchange market may increase social welfare.
Suggested Citation: Suggested Citation
Kemp, Murray C. C. and Sinn, Hans-Werner, A Simple Model of Useless Speculation (November 1990). NBER Working Paper No. w3513, Available at SSRN: https://ssrn.com/abstract=471512
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