Endogenous uncertainty in a general equilibrium model with price contingent contracts (*)
AbstractThis paper views uncertainty and economic fluctuations as being primarily endogenous and internally propagated phenomena. The most important Endogenous Uncertainty examined in this paper is price uncertainty which arises when agents do not have structural knowledge and are complelled to make decisions on the basis of their beliefs. We assume that agents adopt Rational Beliefs as in Kurz [1994a]. The trading of endogenous uncertainty is accomplished by using Price Contingent Contracts (PCC) rather than the Arrow-Debreu state contingent contracts. The paper provides a full construction of the "price state space" which requires the expansion of the exogenous state space to include the "state of beliefs." This construction is central to the analysis of equilibrium with endogenous uncertainty and the paper provides an existence theorem for a Rational Belief Equilibrium with PCC. It shows how the PCC completes the markets for trading endogenous uncertainty and lead to an allocation which is Pareto optimal. This paper also demonstrates that endogenous uncertainty is generically present in this new equilibrium.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 8 (1996)
Issue (Month): 3 ()
Note: Received: March 14, 1995; revise version November 9, 1995
Contact details of provider:
Web page: http://link.springer.de/link/service/journals/00199/index.htm
Find related papers by JEL classification:
- D5 - Microeconomics - - General Equilibrium and Disequilibrium
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Mordecai Kurz & Maurizio Motolese, 2011.
"Diverse beliefs and time variability of risk premia,"
Springer, vol. 47(2), pages 293-335, June.
- Mordecai Kurz & Maurizio Motolese, 2007. "Diverse Beliefs and Time Variability of Risk Premia," Discussion Papers 06-044, Stanford Institute for Economic Policy Research.
- Kurz, Mordecai, 2006. "Beauty contests under private information and diverse beliefs: how different?," MPRA Paper 233, University Library of Munich, Germany, revised Apr 2006.
- Shurojit Chatterji & Sayantan Ghosal, 2013.
"Contracting over Prices,"
2013_24, Business School - Economics, University of Glasgow.
- Shurojit Chatterji & Sayantan Ghosal, 2012. "Contracting over Prices," Working Papers 36-2012, Singapore Management University, School of Economics.
- Chatterji, S. & Ghosal, Sayantan, 2013. "Contracting over Prices," SIRE Discussion Papers 2013-88, Scottish Institute for Research in Economics (SIRE).
- Kurz, Mordecai, 2008. "Beauty contests under private information and diverse beliefs: How different?," Journal of Mathematical Economics, Elsevier, vol. 44(7-8), pages 762-784, July.
- Mordecai Kurz, 1997. "Social States of Belief and the Determinants of the Equity Risk Premium in A Rational Belief Equilibrium," Working Papers 97026, Stanford University, Department of Economics.
- Nielsen, Carsten Krabbe, 2008. "On rationally confident beliefs and rational overconfidence," Mathematical Social Sciences, Elsevier, vol. 55(3), pages 381-404, May.
- Carsten Krabbe Nielsen, 2004. "Stabilizing, Pareto Improving Policies in an OLG model with Incomplete Markets: The Rational Expectations and Rational Beliefs Case," Econometric Society 2004 Far Eastern Meetings 617, Econometric Society.
- Kurz, Mordecai & Motolese, Maurizio, 2006. "Risk Premia, diverse belief and beauty contests," MPRA Paper 247, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F Baum).
If references are entirely missing, you can add them using this form.