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Unawareness and bankruptcy: A general equilibrium model

Author

Listed:
  • Salvatore Modica

    (Università degli studi di Palermo - University of Palermo)

  • Aldo Rustichini

    (CentER - Tilburg University [Netherlands])

  • Jean-Marc Tallon

    (M.A.D. - UP1 - Université Paris 1 Panthéon-Sorbonne)

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.

Suggested Citation

  • Salvatore Modica & Aldo Rustichini & Jean-Marc Tallon, 1998. "Unawareness and bankruptcy: A general equilibrium model," Post-Print halshs-00499386, HAL.
    • Handle: RePEc:hal:journl:halshs-00499386
    DOI: 10.1007/s001990050221
    as

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    Keywords

    Unawareness; bankruptcy;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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