Non-existence of competitive equilibria with dynamically inconsistent preferences
AbstractThis 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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Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 52 (2013)
Issue (Month): 1 (January)
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Web page: http://link.springer.de/link/service/journals/00199/index.htm
Other versions of this item:
- Gabrieli, Tommaso & Ghosal, Sayantan, 2009. "Non-Existence of Competitive Equilibria with Dynamically Inconsistent Preferences," The Warwick Economics Research Paper Series (TWERPS) 900, University of Warwick, Department of Economics.
- D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
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