ABSTRACT
These propositions have been shown to be valid for general-equilibrium barter economies of the Arrow-Debreu type, with a well-behaved social utility function or appropriate compensation among individuals, whether or not uncertainty is present as long as a set of complete markets is present. Of course, it is a feature of such economies that markets are complete. The fairly recent work of Newbery and Stiglitz (1984) and Shy (1988), which presents examples in which free trade is Pareto-inferior to autarky for barter economies with suboptimal risk sharing, has raised questions about the validity of these propositions when markets are incomplete. However, Kemp and Wong (1991) have shown that feasible lumpsum compensating transfers are always available for these economies to guarantee welfare improvement in the cases considered by these propositions.
