Recent Advances in Understanding Competitive Markets

The Arrow-Debreu model of competitive markets has proven to be a remarkably rich and °exible foundation for studying an array of important economic problems, ranging from social security reform to the determinants of long-run growth. Central to the study of such questions are many of the extensions and modi ̄cations of the classic Arrow-Debreu framework that have been advanced over the last 40 years. These include dynamic models of exchange over time, as in overlapping generations or continuous time, and under uncertainty, as in incomplete ̄nancial markets. Many of the most interesting and important recent advances have been spurred by questions about the role of markets in allocating resources and providing opportunities for risksharing arising in ̄nance and macroeconomics. This article is intended to give an overview of some of these more recent developments in theoretical work involving competitive markets, and highlight some promising areas for future work.