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Non-existence of competitive equilibria with dynamically inconsistent preferences
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Gabrieli, Tommaso and Ghosal, Sayantan (2013) Non-existence of competitive equilibria with dynamically inconsistent preferences. Economic Theory, Vol.52 (No.1). pp. 299-313. doi:10.1007/s00199-011-0623-9 ISSN 0938-2259.
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Official URL: http://dx.doi.org/10.1007/s00199-011-0623-9
Abstract
This paper shows the robust non-existence of competitive equilibria even in a simple three period representative agent economy with dynamically inconsistent preferences. We distinguish between a sophisticated and naive representative agent. Even when underlying preferences are monotone and convex, at given prices, we show by example that the induced preference of the sophisticated representative agent over choices in first-period markets is both non-convex and satiated. Even allowing for negative prices, the market-clearing allocation is not contained in the convex hull of demand. Finally, with a naive representative agent, we show that perfect foresight is incompatible with market clearing and individual optimization at given prices.
Item Type: | Journal Article | ||||
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Subjects: | H Social Sciences > HB Economic Theory | ||||
Divisions: | Faculty of Social Sciences > Economics | ||||
Journal or Publication Title: | Economic Theory | ||||
Publisher: | Springer | ||||
ISSN: | 0938-2259 | ||||
Official Date: | 1 January 2013 | ||||
Dates: |
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Volume: | Vol.52 | ||||
Number: | No.1 | ||||
Page Range: | pp. 299-313 | ||||
DOI: | 10.1007/s00199-011-0623-9 | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published | ||||
Access rights to Published version: | Restricted or Subscription Access | ||||
Version or Related Resource: | Previous version available as: Gabrieli, T. and Ghosal, S. (2009). Non-existence of competitive equilibria with dynamically inconsistent preferences. [Coventry] : University of Warwick, Economics Department. (Warwick economic research papers, no.900). |
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