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General equilibrium, wariness and efficient bubbles

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  • Araujo, Aloisio
  • Novinski, Rodrigo
  • Páscoa, Mário R.

Abstract

Wary consumers overlook gains but not losses in remote sets of dates or states. As preferences are upper but not lower Mackey semi-continuous, Bewley[modifier letter apostrophe]s (1972) [4] result on existence of equilibrium whose prices are not necessarily countably additive holds. Wariness is related to lack of myopia and to ambiguity aversion (and, therefore, to Bewley[modifier letter apostrophe]s (1986) [6] work on Knightian uncertainty). Wary infinite lived agents have weaker transversality conditions allowing them to be creditors at infinity and for bubbles to occur in positive net supply assets completing the markets. There are efficient allocations that can only be implemented with asset bubbles.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 146 (2011)
Issue (Month): 3 (May)
Pages: 785-811

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Handle: RePEc:eee:jetheo:v:146:y:2011:i:3:p:785-811

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Web page: http://www.elsevier.com/locate/inca/622869

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Keywords: General equilibrium Wariness Bubbles Ambiguity Transversality condition Pure charges;

References

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  1. Gilboa, Itzhak, 1989. "Expectation and Variation in Multi-period Decisions," Econometrica, Econometric Society, vol. 57(5), pages 1153-69, September.
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  12. Manuel S. Santos & Michael Woodford, 1997. "Rational Asset Pricing Bubbles," Econometrica, Econometric Society, vol. 65(1), pages 19-58, January.
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  14. Prescott, Edward C & Lucas, Robert E, Jr, 1972. "A Note on Price Systems in Infinite Dimensional Space," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(2), pages 416-22, June.
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  16. Kurz, Mordecai & Majumdar, Mukul, 1972. "Efficiency Prices in Infinite Dimensional Spaces: A Synthesis," Review of Economic Studies, Wiley Blackwell, vol. 39(2), pages 147-58, April.
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Cited by:
  1. repec:hal:journl:halshs-00673995 is not listed on IDEAS
  2. Jean-Marc Bottazzi & Jaime Luque & Mario R. Pascoa, 2011. "Trading and rational security pricing bubbles," Economics Working Papers we1119, Universidad Carlos III, Departamento de Economía.
  3. Chateauneuf, Alain & Ventura, Caroline, 2013. "G-continuity, impatience and myopia for Choquet multi-period utilities," Journal of Mathematical Economics, Elsevier, vol. 49(1), pages 97-105.
  4. Corbae, Dean & Marimon, Ramon, 2011. "Introduction to Incompleteness and Uncertainty in Economics," Journal of Economic Theory, Elsevier, vol. 146(3), pages 775-784, May.

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