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Non-existence of competitive equilibria with dynamically inconsistent preferences

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  • Tommaso Gabrieli

    ()

  • Sayantan Ghosal

    ()

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. Copyright Springer-Verlag 2013

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File URL: http://hdl.handle.net/10.1007/s00199-011-0623-9
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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 52 (2013)
Issue (Month): 1 (January)
Pages: 299-313

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Handle: RePEc:spr:joecth:v:52:y:2013:i:1:p:299-313

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Related research

Keywords: Dynamically inconsistent preferences; Competitive equilibrium; Existence; Satiation; Non-convexity; D50; D91;

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  1. P. Herings & Kirsten Rohde, 2006. "Time-inconsistent preferences in a general equilibrium model," Economic Theory, Springer, vol. 29(3), pages 591-619, November.
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  3. Luttmer, Erzo & Mariotti, Thomas, 2004. "Efficiency and Equilibrium when Preferences are Time-Inconsistent," IDEI Working Papers 335, Institut d'Économie Industrielle (IDEI), Toulouse.
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  7. Caplin, Andrew & Leahy, John, 2006. "The recursive approach to time inconsistency," Journal of Economic Theory, Elsevier, vol. 131(1), pages 134-156, November.
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Cited by:
  1. Takeshi Ojima, 2013. "General Equilibrium Dynamics with Naive and Sophisticated Hyperbolic Consumers in an Overlapping Generations Economy," ISER Discussion Paper 0886r, Institute of Social and Economic Research, Osaka University, revised Jan 2014.
  2. Takeshi Ojima, 2013. "General equilibrium dynamics with naive and sophisticated hyperbolic consumers in an overlapping generations economy," ISER Discussion Paper 0886, Institute of Social and Economic Research, Osaka University.

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