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incomplete markets


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Situations where certain goods or services cannot be traded because there is no organized market on which to trade. Markets may be incomplete for various reasons. One is that the goods concerned have not yet been invented, so that no contract to trade them can be specified. Another is that while the conditions of a contract to trade could be specified, this would be so complex that the legal bills would outweigh the benefits. Another is that there are too few people interested in trading goods of a given type to make an organized market in them worth the costs of operating it. Incomplete markets are a source of market failure. See also Arrow–Debreu economy; Coase theorem.

Subjects: Economics.


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