Ex Ante Optimality and Spot Market Economies

Arrow's result linking ex ante Pareto optimality for a pure trade world to competitive equilibrium positions under a complete set of contingent claim markets is summarized, as is his reinterpretation of ex ante optimality for the case of an economy with active spot markets. Possible difficulties arising from this reinterpretation are noted. The final section of the paper examines conditions under which an economy with active spot markets will achieve an ex ante optimum in the original sense of this term and summarizes the behavior of such an economy.