A Simple Model of Useless Speculation

17 Pages Posted: 28 Dec 2006 Last revised: 8 Aug 2022

See all articles by Murray C. Kemp

Murray C. Kemp

Macquarie University - College of Commerce; UNSW Australia Business School, School of Economics; Chukyo University

Hans-Werner Sinn

CESifo (Center for Economic Studies and Ifo Institute); National Bureau of Economic Research (NBER); Ludwig Maximilian University of Munich (LMU)

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

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

Murray C. C. Kemp (Contact Author)

Macquarie University - College of Commerce ( email )

Sydney, New South Wales
Australia

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia
+61 2 9385 3325 (Ext. 3325) (Phone)
+61 2 9313 6337 (Fax)

Chukyo University

101-2 Yagoto Honmachi
Showa-ku Institute of Economics
Nagoya-shi, Aichi-ken

Hans-Werner Sinn

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany
+49 89 9224 1276 (Phone)
+49 89 9224 1409 (Fax)

HOME PAGE: http://www.cesifo.de

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Ludwig Maximilian University of Munich (LMU)

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

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