Arrow-Debreu Model

The Arrow-Debreu model is an economic theory that describes how markets can work efficiently under certain conditions. It suggests that in a complete market, individuals can trade an array of goods and securities for any future state of the world. This allows for optimal resource allocation, where supply meets demand perfectly. The model relies on assumptions like rational behavior and perfect information, and it shows how economic equilibrium can be achieved. In essence, it illustrates the theoretical framework for how diverse agents can interact through markets, leading to efficient outcomes in an idealized economy.