The perfect foresights' assumption revisited : (I) the existence of equilibrium with multiple price expectations
AbstractOur earlier papers [2,3,4,5,6] had extended to asymmetric information the classical existence theorems of general equilibrium theory [1,7,10], under the standard assumption that agents had perfect foresights, that is they knew, ex ante, which price would prevail on each spot market. Common observation suggests, however that agents more often trade with an unprecise knowledge of future prices. We now let agents anticipate, in each random state, a set of plausible spot prices and introduce a mild condition of consistent anticipations and a related concept of "correct foresights equilibrium" along which the "true" spot prices are, ex ante, in all agents' anticipations. We prove, in a finite economy with standard assumptions, that existence of such equilibrium is still characterized by the no-arbitrage condition of finance. This result, which extends our earlier theorems, shows that private information and uncertain anticipations would not affect existence but the value of equilibrium prices and allocations.
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Bibliographic InfoPaper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number b07015.
Length: 26 pages
Date of creation: Apr 2007
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General equilibrium; incomplete markets; asymmetric information; arbitrage; existence of equilibrium.;
Find related papers by JEL classification:
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-04-28 (All new papers)
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