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Unawareness and bankruptcy: A general equilibrium model

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Author Info

  • Salvatore Modica

    (Universita` di Palermo, IMRO, I-98121 Palermo, ITALY)

  • J.-Marc Tallon

    (CNRS-MAD, Université Paris I, F-75634 Paris Cedex 13, FRANCE)

  • Aldo Rustichini

    (CentER, Tilburg University, P.O. Box 90153, NL-5000 LE Tilburg, THE NETHERLANDS)

Abstract

We present a consistent pure-exchange general equilibrium model where agents may not be able to foresee all possible future contingencies. In this context, even with nominal assets and complete asset markets, an equilibrium may not exist without appropriate assumptions. Specific examples are provided. An existence result is proved under the main assumption that there are sufficiently many states that all the agents foresee. An intrinsic feature of the model is bankruptcy, which agents may involuntarily experience in the unforeseen states.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 12 (1998)
Issue (Month): 2 ()
Pages: 259-292

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Handle: RePEc:spr:joecth:v:12:y:1998:i:2:p:259-292

Note: Received: April 23, 1997; revised version: May 19, 1997
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Cited by:
  1. Spyros Galanis, 2013. "Unawareness of theorems," Economic Theory, Springer, vol. 52(1), pages 41-73, January.
  2. Liu, Zhen, 2006. "Fair Disclosure and Investor Asymmetric Awareness in Stock Markets," MPRA Paper 917, University Library of Munich, Germany.
  3. Auster, Sarah, 2013. "Asymmetric awareness and moral hazard," Games and Economic Behavior, Elsevier, vol. 82(C), pages 503-521.
  4. Araújo, Aloísio Pessoa de, 2003. "As Leis de Falência: Uma Abordagem Econômica," Economics Working Papers (Ensaios Economicos da EPGE) 474, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  5. Francesco Squintani, 1999. "Games with Small Forgetfulness," Discussion Papers 1273, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Jürgen Eichberger & Klaus Rheinberger & Martin Summer, 2014. "Credit Risk in General Equilibrium," CESifo Working Paper Series 4602, CESifo Group Munich.
  7. Sarah Auster, 2012. "Asymmetric Awareness and Moral Hazard," Economics Working Papers ECO2012/23, European University Institute.
  8. Li Gan & Tarun Sabarwal, 2005. "A Simple Test of Adverse Events and Strategic Timing Theories of Consumer Bankruptcy," NBER Working Papers 11763, National Bureau of Economic Research, Inc.
  9. Tarun Sabarwal, 2000. "Welfare Effects of Bankruptcy," Levine's Working Paper Archive 1980, David K. Levine.
  10. Hadjikhani, Amjad & Hadjikhani, Annoch Isa & Thilenius, Peter, 2014. "The internationalization process model: A proposed view of firms’ regular incremental and irregular non-incremental behaviour," International Business Review, Elsevier, vol. 23(1), pages 155-168.
  11. Sarah Auster, 2011. "Asymmetric Awareness and Moral Hazard," Economics Working Papers ECO2011/, European University Institute.
  12. Ying-Ju Chen & Xiaojian Zhao, 2013. "Solution Concepts of Principal-Agent Models with Unawareness of Actions," Games, MDPI, Open Access Journal, vol. 4(3), pages 508-531, August.
  13. Filiz-Ozbay, Emel, 2012. "Incorporating unawareness into contract theory," Games and Economic Behavior, Elsevier, vol. 76(1), pages 181-194.
  14. Spyros Galanis, 2011. "Syntactic foundations for unawareness of theorems," Theory and Decision, Springer, vol. 71(4), pages 593-614, October.

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