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, we show by example that the induced preferences, at given prices, of the sophisticated representative agent over choices in first period markets are both non convex and satiated. Therefore, 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.
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Bibliographic InfoPaper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 900.
Date of creation: 2009
Date of revision:
dynamically inconsistent preferences ; competitive equilibrium ; existence ; satiation ; non convexity;
Other versions of this item:
- Tommaso Gabrieli & Sayantan Ghosal, 2013. "Non-existence of competitive equilibria with dynamically inconsistent preferences," Economic Theory, Springer, vol. 52(1), pages 299-313, January.
- D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-05-02 (All new papers)
- NEP-MAC-2009-05-02 (Macroeconomics)
- NEP-MIC-2009-05-02 (Microeconomics)
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